Why are the bid prices of T-bills higher than the ask prices? Aren't bids supposed to be lower than ask prices?

By Investopedia Staff AAA
A:

Yes, you are correct that the ask price of a security should typically be higher than the bid price. This is because people will not sell a security (asking price) for lower than the price they are willing to pay for it (bidding price). So, because there is more than one method of quoting the bid and ask prices of T-bills, the quoted ask price may simply be perceived as being lower than the bid.

For example, one common quote that you may see for a 365-day T-bill is July 12th, bid 5.35%, ask 5.25%. At first glance, the bid seems higher than the ask, but upon further inspection, you can see that the ask is actually higher. The reason is that a T-bill is a discount bond and these percentages are the quoted yields, not the actual prices. So, if we convert the bid and ask discount yields into the dollar amounts of the prices, we get a bid of $94.65 and an ask of $94.75. Therefore, the bid is actually lower than the ask. Sometimes the quotes on T-bills show the actual prices, in which case you don't have to convert or calculate anything. The same T-bill above, therefore, may be quoted with a bid of 94.65 and an ask of 94.75.

So, as the dollar amount of the bid should be lower than the ask, the bid's quoted yield percentage should be higher than the ask's quoted yield percentage - the two different kinds of quotes are just different ways of saying the same thing.

RELATED FAQS

  1. How is face value used to determine taxation?

    Discover how the face value of a corporate debt security can directly impact the amount of taxes that the owner of the security ...
  2. What legal recourse do I have if the counterparty in a debenture agreement does not ...

    Understand the risks and benefits of debenture agreements, and what legal recourse you have should the other party fail to ...
  3. Can investments be consumed immediately?

    Learn about what immediate consumption means for assets. Find out how consumption impacts investing choices and planning ...
  4. How long has the U.S. run fiscal deficits?

    Read about the history of deficit spending in the United States, dating back to 1789, and learn about then-Treasury of the ...
RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Treasury Yield

    The return on investment, expressed as a percentage, on the debt ...
  3. Series I Bond

    A non-marketable, interest-bearing U.S. government savings bond ...
  4. Safe Haven

    An investment that is expected to retain its value or even increase ...
  5. Bond Resolution

    1. A document used with government bonds, especially general ...
  6. Fully Taxable Equivalent Yield

    The yield on a municipal bond, when the effect of reduced taxes ...

You May Also Like

Related Articles
  1. Stock Analysis

    Government Bond ETFs: Pros and Cons

  2. Bonds & Fixed Income

    Interested In West African Debt? Look ...

  3. Stock Analysis

    Is It Finally Time For TIPS?

Trading Center