Treasury bills are short-term (maturity of less than one year) debt obligations issued by the US 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, with investors collecting 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.

### Maturity

(sometimes shown as “issue”): This is the date the bill will be redeemed and the investor paid the face value amount. For purposes of this example, assume the maturity date is 100 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 (dropping the decimals) by the number of days until maturity and then dividing by 360 and then subtracting that number from 10,000:

• 4*100/360=\$1.11
• \$10,000-\$1.11=\$9,998.89

In this example, the buyer is willing to pay \$9,998.89 for a bill that will be redeemed for \$10,000 in 100 days.

The ask, or offer price, represents the interest rate the seller is willing to sell to you at. 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.

• 3*100/360=\$0.83
• \$10,000-\$0.83=\$9,999.17

In this example, the seller is willing to accept \$9,999.17 for a bill that will be redeemed for \$10,000 in 100 days.

### Change

The change shows the difference from the prior bid. In this case, the prior bid was higher by 0.01 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 3% on an annualized basis.

## 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.