Money market instruments

Money market instruments are very short term debt securities, with maturies of a few days to one year.Desjardins, Understanding money markets, undated, viewed August 27, 2023. They are issued by governments, financial institutions and large corporations. These securities are typically very liquid, very safe, and typically trade in very high denominations on a dealer market, i.e. without a central exchange.
The best known and most liquid money market intruments are treasury bills issued by governments. The private sector issues bankers acceptances and commercial paper. This article describes each of these instruments in turn. Most individual investors access money markets indirectly through money market mutual funds or money market exchange-traded funds, although T-bills can be available from discount brokers starting at $10 000 minimums.Desjardins, Treasury bills and other money market securities, viewed August 27, 2023.
==Treasury bills==
Treasury bills, usually called "T-Bills", are debt instruments issued by the Government of Canada (or provinces) with maturities of up to 360 days.National Bank of Canada, Why buy Treasury bills?, viewed November 30, 2021. They are sold at a discount to face value (i.e., at less than 100 cents to the dollar) and pay full face value on maturity. The difference between the face value and the purchase price represents the interest payment and is fully taxable in non-registered accounts.Canada Revenue Agency, Line 12100 - Treasury bills, viewed November 30, 2021. 
An example of an annualized rate of return calculation from the Department of Finance (Canada) is as follows:Determining Bond and Treasury Bill Prices and Yields, Technical Guide (Government of Canada Securities), modified May 30, 2001, viewed August 28, 2023.
Since T-Bills are government-issued, no CDIC guarantee is necessary. They are suitable for parking large amounts of cash for a short time, with full government guarantees. The fact that they exist is also useful for economists to determine what is the risk-free rate of return, i.e. any investment with more risk than T-bills should get a higher expected return.
Current T-bills rates can be found at Selected treasury bill yields - Bank of Canada. Historical returns are avaible under Canadian asset class returns.
==Commercial paper==
===Unsecured===
Commercial paper is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Commercial paper is supported by a standby line of credit as a liquidity backstop. It is issued by a wide range of corporate borrowers with "good" to "highest" short term credit ratings. These borrowers "generally also have access to the primary bond market and mainly use CP to raise additional working capital or to smooth seasonal cash flows".
Maturities on commercial paper rarely range any longer than 270 days.Investopedia, Commercial paper definition, viewed July 26, 2012. The returns of commercial paper are higher than on T-bills because of the risk of default, and commercial paper is usually issued in denominations of $100k or more, so individual investors typically access it through money market mutual funds.
Unsecured commercial paper accounted for only 5% of Canadian money markets in 2017.
===Asset-backed===
Canadians were made aware of asset-backed commercial paper (ABCP) when the market for about $32-billion worth of this debt froze completely in August 2007.Asset-backed commercial paper's long road back - Business - CBC News, viewed July 26, 2012. Issues with non-bank ABCP in particular are chronicled in the Money market fund article.
Despite decreased investor demand since the global financial crisis, ABCP sill accounted for 10% of Canadian money markets in 2017, making it the second-largest money market instrument issued by the private sector after bankers' acceptances.
==Banker's acceptance==
Bankers' acceptances were introduced in the early 1960s in Canada.Kaetlynd McRae and Danny Auger (2018) A Primer on the Canadian Bankers’ Aceptance Market, Bank of Canada Staff Discussion Paper 2018-6, viewed August 28, 2023. They "account for the largest share of money market instruments issued by non-government entities and are the second-largest money market instrument overall in Canada".
Bankers' acceptances are short-term debt instruments issued by a firm but guaranteed by a bank. Here is how the Bank of Canada describes them :
In the US and the UK, BAs are often used to finance international trade and importing activities. But in Canada they are often used to finance domestic activities. 
Corporations with high credit ratings might prefer to issue commercial paper instead of BAs, since that might lower their cost of funding.
:
 Primary means of receiving short-term funding for corporations, by short-term credit rating
Credit quality 	DBRS short-term debt rating 	Ability to issue/access short-term funding products
Highest quality Superior Good 	R-1 (high) R-1 (mid) R-1 (low)	Commercial paper and BA facility
Adequate protection 	R-2 	BA facility
Lower end of adequate Speculative	R-3 R-4 	Line of credit
==Typical spreads==
T-bills from the federal government are considered risk-free. All other money market instruments must have higher yields to attract investors. In 2017, the following spreads were typical, where 1 basis point is 0.01%:
:
 Illustrative spread of money market securities over Government of Canada treasury bills
Money market product 	Spread over Government of Canada 3-month treasury bills (basis points)
Government of Canada treasury bills	0
Provincial treasury bills 	+10
Commercial paper 	+30
Bankers’ acceptances 	+30
Asset-backed commercial paper 	+40
==See also==
*Short term cash returns
==References==
Category:Financial management
Category:Cash management