Treasury bills (or T-bills) are Treasury securities that have a maturity of a year or less when issued. Unlike longer-term Treasuries, T-bills pay no coupons. Instead, they make a single payment of par value at maturity. They are issued at a discount to par, so an investor who holds a T-bill to maturity earns the difference between the par value and discounted value at which the instrument was purchased. By convention, prices for T-bills are quoted for USD 100 of par value. For example, a T-bill with 84 days to maturity might be quoted at a price of USD 99.1763 per USD 100 of par value. T-bills are also quoted as an actual/360 discount yield. By convention, this is calculated as
where
Applying this to our example, the treasury bill would have a discount yield of
or 3.53%. The Department of Treasury auctions standard maturities of T-bills. In the past, these have included 4-, 13-, 26- and 52-week maturities, but issuance of certain maturities may be suspended for periods of time. These instruments are issued through weekly auctions. The Treasury occasionally also issues cash management T-bills. These are T-bills with non-standard maturities that generally fall on dates when the Treasury is expecting large tax receipts. There is an active secondary market for T-bills. It is a significant component of the global money market.
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price
is the price per USD 100 of par value, and
