Treasury Bills

What are Treasury Bills (T-Bills)?

Treasury Bills, or more commonly known as T-Bills, are short term government debt instruments, issued at a discount to par and mature within 1 year.  The largest purchase volumes come from primary dealers and other large banking or financial institutions.

T-Bill issuance is a form open market operations employed by the Federal Reserve to control the money supply.  Large T-Bill issuances are seen as a means to reduce the money supply, thereby reducing liquidity to control inflation.  When the treasury buys T-Bills back, their aim is to increase the money supply and decrease interest rates.

Similar to discount notes and zero-coupon bonds, t-bills do not make periodic interest payments and mature at par.  The interest component on the security is paid at maturity, equaling the par value of the bond minus the purchase price.  For example, if you purchased a bond with a par value of $100 at $95, you would receive $5 of interest.

Additionally, interest income derived from treasury bills is exempt from state & local taxes but is subject to federal taxes.

T-Bill Yield Calculation

To calculate the yield of treasury bills, you can use the following formula:

T-Bill Yield Calculation

When are T-Bills Sold?

Treasury bills are auctioned off weekly with maturities of 4 weeks (1 Month), 13 weeks (3 Months), 26 weeks (6 Months), and 52 weeks (1 year).  These standard maturities are commonly referred to benchmark bills.  Since there is an auction every week for each of these maturities, the most recently issued security for each specific maturity is known as the on the run security.  All previously issued maturities are known as off the run securities.

Benchmark bill auctions can be accessed through the TreasuryDirect website and require a minimum bid of $100.  The auction is a single price dutch auction which will guarantee a price equal to the lowest bid that will fill the supply being offered.  To prevent a large buyer from winning the entire offering, there is a 35% maximum allotment to any one single buyer.

Treasury Re-openings

For some types of the securities, the treasury will re-open previously issued securities which will have the maturity date, security CUSIP, and coupon interest rate as the originally issued security.  The one thing to keep in mind however is that the price that you will pay for the re-opened will most likely be different than the price of the original issuance since interest rates may have moved in the market.

Currently, the treasury is only offering re-openings on 10 year treasury notes, 5yr TIPS, 10yr TIPS, 30 yr TIPS, and the 30 year treasury bond.  Visit the following link to more details the exact dates of the re-openings. 

Treasury Re-Opening Schedule

Cash Management Bills

The treasury also issues cash management bills (CMB) which have non-standard maturities.  They are issued to meet temporary short term funding needs of the treasury and have maturities that range from a few days out, up to a couple months.  Yields on CMB's are higher than the typical T-Bill issuance due to the fact that there are not as many buyers for these securities.

Types of Treasury Securities:
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