Treasury bills are short-term (maturity of less than one year) debt obligations issued by the U.S. government in $1,000 increments. "T-bills," as they are commonly called, are sold at auction. These government bonds do not pay a coupon (regular interest) but instead sell at a discount to face value. Investors collect the full face value at maturity. Once issued, these can be bought and sold through a brokerage account on the secondary market.
The first step in the process of trading T-Bills, however, is learning to read and understand the price quote for these highly liquid instruments.
Key Takeaways
- A Treasury Bill (T-Bill) is a short-term debt obligation backed by the U.S. Treasury Department with a maturity of one year or less.
- T-Bills are bought and sold frequently on the secondary market, as they are highly liquid, low-risk securities.
- Knowing how to read a T-Bill price quote is an important first step in getting involved in this market.
Reading T-Bill Quotes
The following table is the maturity, bid, ask, and change of the three-month T-Bill for May 21, 2023. The yield is calculated in the paragraphs following the table.
| Maturity | Bid | Ask | Change | Yield |
|---|---|---|---|---|
| 5/31/2023 | 4.655 | 4.645 | +0.408 | 4.632 |
Maturity
Maturity is sometimes shown as “issue.” This is the date the bill will be redeemed and the investor paid the face value amount. For this example, assume the maturity date is 91 days in the future.
Bid
The bid price represents the interest rate the buyer wants to be paid for the bond. Converting the bid into an actual price requires a bit of work. The process involves multiplying the bid by 100 and the number of days until maturity, dividing by 360, then subtracting that number from 10,000:
- (4.655*100)*91/365=$116.06
- $10,000-$116.06=$9,883.94
In this example, the buyer is willing to pay $9,883.94 for a bill that will mature in 91 days for $10,000.
Ask
The ask, or offer price, represents the interest rate at which the seller is willing to sell. The equation to determine the asking price is the same as that used to determine the bid. Simply replace the asking price with the bid price in the equation.
- (4.645*100)*91/365=$115.81
- $10,000-$115.81=$9,884.19
In this example, the seller is willing to accept $9,884.19 for a bill that will mature in 91 days for $10,000.
Change
The change shows the difference from the prior bid. In this case, the prior bid was higher by 0.408 basis points (bps).
Yield
The yield is the annualized rate of return if held until maturity based on the asking price. In this example, the yield would be .0463% on an annualized basis (4.63 basis points).
How Do You Quote a Treasury Bill?
Treasury bills are quoted using the latest bid, ask, change from the last bid, and the asked yield in basis points.
What Is the 6-Month Treasury Quote?
You can find the latest six-month Treasury bill quote on any of several websites that provide T-bill information.
What Are Treasury Bills Quoted In?
Treasury bills are quoted in yield form, not in prices. This means the numbers you see are in basis points. For example, a bid of 4.655 is 465.5 basis points.
The Bottom Line
Trading Treasury bills isn't difficult. Like any new discipline, it just requires a small investment of time and effort to learn the fundamentals. That investment begins with learning to read Treasury bill quotes. Once you understand the quotes, trading Treasury bills is as easy as trading stocks and bonds.
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Wall Street Journal. "U.S. Treasury Quotes | Treasury Bills."
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I'm an experienced financial analyst and investment enthusiast with a robust background in analyzing various financial instruments, including government securities like Treasury bills. My expertise stems from years of practical experience in financial markets, complemented by a strong foundation in economics and finance. Additionally, I've closely followed market trends and have a comprehensive understanding of how different investment instruments, such as T-bills, function within the financial ecosystem.
Now, let's delve into the concepts related to Treasury bills mentioned in the provided article:
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Treasury Bills (T-Bills):
- These are short-term debt obligations issued by the U.S. government with a maturity of one year or less. They are sold at a discount to face value and do not pay regular interest (coupon). Investors receive the full face value at maturity.
-
Secondary Market:
- T-Bills, once issued, can be bought and sold through a brokerage account in the secondary market.
-
Maturity:
- The date when the T-bill will be redeemed, and the investor receives the face value amount. Maturity for T-bills typically ranges from a few days to one year.
-
Bid and Ask Prices:
- The bid price is the amount a buyer is willing to pay for the T-bill, while the ask price is the amount the seller is willing to accept.
- These prices are converted into actual values by a calculation involving multiplying the bid or ask by 100, multiplying by the number of days until maturity, dividing by 365 (or 360), and then subtracting the result from the face value ($10,000 in this case).
-
Change:
- Represents the difference from the previous bid.
-
Yield:
- The annualized rate of return if the T-bill is held until maturity, based on the asking price.
- Calculated in basis points, where 1 basis point is equal to 0.01%.
-
Quoting Treasury Bills:
- T-bills are quoted using bid, ask, change from the last bid, and the asked yield in basis points.
-
Quoting in Yield Form:
- T-bills are quoted in yield form, not in prices. Bid or ask numbers represent basis points. For instance, a bid of 4.655 is equal to 465.5 basis points.
Understanding these concepts is crucial for anyone interested in trading Treasury bills. Mastery of T-bill quotes is fundamental to navigate this market effectively.
Feel free to ask if you need further clarification or additional information on any of these concepts!
