After piloting cash-investment auctions as an additional cash management tool, the U.S. Treasury announced in October 2003 the permanent addition of the Term Investment Option (TIO) to the Treasury Tax & Loan (TT&L) program. Since the program began, the Treasury has conducted monthly TIO auctions and, as of the end of September 2004, has invested $250 billion through 34 auctions.
Everyone who participates in TIO receives a benefit. The Treasury receives additional investment capacity and a greater rate of return on the funds invested. For participating depository institutions, TIO also provides greater flexibility and more certainty.
To qualify for TIO, participants must be TT&L depository institutions in sound financial condition. Like other TT&L investment options, TIO requires that all invested funds be secured with collateral throughout the term of the investment. The Treasury provides a list of acceptable collateral for any given TIO auction in the initial announcement.
The TIO is built on a competitive bidding process whereby participating institutions submit bids for fixed-term investments offered by the Treasury through a secure web site called TERMLink™. TIO participants can bid at any auction. If an institution chooses to bid, it can submit bids in the amount desired-a $10 million minimum bid amount is required-and at the rate(s) it is willing to pay.
The TIO funds typically are offered to participating depository institutions toward the middle of the month, although auctions can occur at any time depending on the Treasury's cash balances. The investment terms typically range from five to 19 days, and the investments either mature toward the end of that same month or the beginning of the following month.
The TIO typically follows a three-day investment process whereby the Treasury offers, auctions and places short-term excess cash balances with successful bidders.
On the first day, the Treasury announces the details of the TIO offering and provides the:
On the second day, the auction is conducted. The Treasury posts the general auction results as well as the individual award notifications-usually within 30 minutes of the cutoff time-to participating bidders on the secure web site.
On the third day, the funds are placed. By then, the awarded participants must have pledged sufficient collateral to receive their funds.
TIO is different from other investment options in the TT&L program in several ways. With TIO, the auction process determines the interest rate, and the rate is stable over the period of the term. In comparison, the Direct Investment, Special Direct Investment and Dynamic Investment options place cash balances based on a pro-rated format that is determined by participants' investment limits. The TT&L TIP Main and SDI Account Balances may be withdrawn at anytime by the Treasury, which announces each morning any investment or withdrawal actions. Also, funds held in these accounts are assessed interest at the TT&L rate, a floating rate based on the average federal funds rate minus 25 basis points over a weekly cycle.
For more information about TIO, call the Term Investment Hotline at 1-800-333-0870 or visit the Treasury's web site for historical auction information, www.fms.treas.gov/tip.
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