Treasury Bills (T-bills): RBI Cuts Holdings in US Treasury Securities

Foreign exchange reserves are more than just big numbers in bank books. What a country does with them, whether it holds them in US Treasuries, gold, or other assets, says a lot about how it sees global risk, geopolitics, and its own financial safety. 

Recently, India has increased its gold holdings and somewhat reduced its exposure to US Treasury securities. This shift appears deliberate, connected to global trade tensions, fears of sanctions, and concern about over-reliance on US dollar-denominated assets. 

In this article we’ll explore what T-bills are, why RBI invests in US Treasuries, what happens if the US imposes sanctions, what India’s current reserve composition looks like, and what this all implies going forward.

What Are Treasury Bills?

Treasury Bills (often called T-bills) are short-term government securities issued by a sovereign (like the US Treasury) with a maturity typically less than one year, often 4 weeks, 13 weeks, 26 weeks (6 months) or 52 weeks (1 year). They are zero-coupon instruments, which means they are sold at a discount to their face (par) value and redeemed at par when they mature.

Imagine you lend a friend ₹95 today, with the promise that in 3 months they’ll pay back ₹100. There is no periodic interest payment; the “interest” is the difference (₹5) earned when they repay you the full ₹100. 

That’s more or less how a T-bill works: you buy it cheaper now, you get more later when it matures.

Some additional metrics and details:

• Maturity periods: Vary depending on the issuing government. In the US, 4-week, 8-week, 13-week, 26-week, 52-week etc.
   
• Issued at discount: You pay less than face value; there is no coupon interest. The yield comes from the difference between purchase price and redemption price.
   
• Redemption / Yield: At maturity, you receive the face value. The yield (return) depends on how large the discount was, which in turn depends on demand, macroeconomic interest rate environment, inflation expectations, and risk perceptions.

Why T-bills are considered “safe” in many contexts:

• Issued by very credit‐worthy sovereigns (like the US), so default risk is very low.
   
• Highly liquid markets. You can buy, sell, or trade them relatively easily.
   
• Short duration: lower interest rate / inflation risk relative to longer‐dated bonds.

However, there are trade-offs:

• Low yields, especially in low interest rate environments (or when inflation is high).
   
• Currency risk: if your domestic currency shifts, even a “safe” T-bill may lose value in local currency terms.
   
• Sovereign risk only covers default risk, but there is also risk of policy change, sanctions, or market access restrictions.

Why Do RBI’s Foreign Reserves Need to Invest in US Treasuries?

India’s foreign exchange reserves serve multiple purposes. Some of the reasons that RBI has historically invested in US Treasury securities (including T-bills, bonds, and other treasuries) are:

1. Safety & Liquidity
   US Treasuries are among the safest liquid assets globally. When you need to convert reserves quickly (for example, to defend the rupee, pay for imports, meet external debt obligations), you want assets that can be sold or pledged quickly without big losses. T-bills especially aid liquidity because of short maturities.
    
2. Preservation of Value
   The US dollar is the world’s primary reserve currency. Many global trade contracts, commodity transactions (like oil), and external debts are denominated in dollars. Holding dollar‐denominated assets helps hedge or at least align with those needs.
    
3. Yield Considerations vs Safety
   Longer-term US Treasuries, or even short US Treasuries, often provide more stable returns than many alternatives, adjusting for risk. Even if the yield is modest, compared to less liquid or riskier assets, it’s an acceptable trade‐off.
    
4.  

So, while investing in US Treasuries is not without cost or risk, historically it has been rational for RBI (and many central banks) to hold substantial amounts in them.

What Happens to US Treasuries If the US Imposes Sanctions on a Country?

If a country is sanctioned by the US (or if the US enforces measures that affect foreign holders of US Treasuries), several possible scenarios could occur, with varying severity and probability depending on the nature of the sanctions, the country involved, and its exposure.

Here are potential risks:

1. Freezing / Blocking Access
   The US Treasury could freeze “foreign official holdings” if they are held in US-based custodians, or block transactions. This has precedent: Russia’s foreign reserves were effectively cut off after sanctions following its invasion of Ukraine. If holdings are held abroad (in US or other jurisdictions), access may be restricted.
    
2. Liquidity Risk
   Even if not outright blocked, trading US Treasuries from abroad may become more difficult (due to counterparty risk, market restrictions, or due to other countries avoiding dealings). Selling large amounts quickly may incur losses, especially if markets anticipate trouble.
    
3. Price Risk / Yield Risk
   The uncertainty may raise yields sharply (fall in price) for US Treasuries, especially if holders are forced to sell or if global investors view them as risky. If the dollar weakens or inflation expectation rises, these assets may lose value in real terms.
    
4.  

What India is doing (reducing US Treasury exposure, increasing gold) seems to be a response to many of these risks, anticipation of geopolitical volatility, possible sanctions risk (explicit or implicit), desire to reduce systemic exposure.

What Is the Current Composition of India’s Forex Reserves?

Here we examine how India’s reserve composition is changing: how much is in US Treasuries (especially T-bills), how much is in gold, what’s the total size, and recent trends.

Below is a table summarizing recent values and trends:

Key Figures in India’s Forex Reserves (US Treasury Holdings vs Gold vs Total Reserves)

Here are some recent data points (as of mid-2024 vs mid-2025) for India’s foreign exchange reserves, gold reserves, and US Treasury holdings: