US Treasury Bill

<body onLoad="MM_checkPlugin('Shockwave Flash','','http://www.riskglossary.com/default_nofl.htm',false);return document.MM_returnValue" stylesrc="../_private/template.htm" bgcolor="#FFFFFF" link="#669933" vlink="#000000" alink="#000000"> <div align="left"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table1"> <tr> <td width="740"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" height="37" id="table2"> <tr> <td height="35" width="100%"> <table border="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" cellpadding="0" id="table3"> <tr> <td width="100%" align="left" valign="top"> <p class="header_gold">US Treasury Bill</td> <td width="45" align="right" valign="bottom"> <map name="FPMap6"> <area href="http://www.contingencyanalysis.com" shape="rect" coords="1, 0, 44, 11" target="_top"> </map> <img border="0" src="../images/home.gif" usemap="#FPMap6" width="45" height="12"></td> </tr> </table> </td> </tr> <tr> <td width="100%" bgcolor="#CC9966" height="2"> <img border="0" src="../images/blank_2x2.gif" width="2" height="2"></td> </tr> <tr> <td width="0%" valign="top" bgcolor="#FFFFCC"> <table border="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" cellpadding="0" cellspacing="1" id="table4"> <tr> <td width="0%" align="left" valign="top"> <p class="header2_black">Explained:<br> <img border="0" src="../images/blank_1x100.gif" width="100" height="1"></td> <td width="99%" align="left" valign="top"><p class="word_list"> <a href="#cash management T-bills">cash management T-bill</a><p class="word_list"> <a href="#T-bills">T-bill</a><p class="word_list"> <a href="#Treasury bills">Treasury bill</a><br> <img border="0" src="../images/blank_1x160.gif" width="160" height="1"></td> </tr> </table> </td> </tr> </table> <table border="0" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111" width="310" align="right" id="table5"> <tr> <td align="right" width="9" height="14"></td> <td width="300" height="14"> <font size="2"> </font><font size="4"> </font></td> </tr> <tr> <td align="right" width="9"> </td> <td width="300"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script>  </td> </tr> </table> <p class="body"><b><a name="Treasury bills">Treasury bills</a></b> (or <b> <a name="T-bills">T-bills</a></b>) are <a href="../articles/treasury_securities.htm">Treasury securities</a> that have a maturity of a year or less when issued. Unlike longer-term Treasuries, T-bills pay no <a href="../articles/coupon_bond.htm">coupons</a>. Instead, they make a single payment of <a href="../articles/par_value.htm">par value</a> 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.</p> <p class="body">By convention, prices for T-bills are quoted for <a href="../articles/currency_codes.htm">USD</a> 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</p> <table border="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" cellpadding="0" height="36" id="table6"> <tr> <td width="100%" align="center"> <img border="0" src="../formulas/treasury_bil_[1].gif" width="295" height="45"></td> <td width="5%" align="right">[1]</td> </tr> </table> <p class="body">where</p> <p class="bullet_line_space"><img border="0" src="../images/bullet.gif" width="20" height="10">price is the price per USD 100 of par value, and</p> <p class="bullet_line_space"><img border="0" src="../images/bullet.gif" width="20" height="10">days to maturity is the number of actual calendar days between the <a href="../articles/settlement.htm">settlement date</a> and maturity date.</p> <p class="body">Applying this to our example, the treasury bill would have a <a href="../articles/discount_yield.htm">discount yield</a> of</p> <table border="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" cellpadding="0" height="36" id="table7"> <tr> <td width="100%" align="center"> <img border="0" src="../formulas/treasury_bil_[2].gif" width="193" height="45"></td> <td width="5%" align="right">[2]</td> </tr> </table> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="345" align="right" id="table8"> <tr> <td align="right" width="9" height="16"></td> <td width="336" height="16"> <font style="font-size: 16pt">  </font></td> </tr> <tr> <td align="right" width="9"> </td> <td width="336"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script>  </td> </tr> </table> <p class="body">or 3.53%.</p> <p class="body">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 <b><a name="cash management T-bills"> cash management T-bills</a></b>. These are T-bills with non-standard maturities that generally fall on dates when the Treasury is expecting large tax receipts.</p> <p class="body">There is an active secondary market for T-bills. 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