A:

Typically, the ask price of a security should be higher than the bid price. This can be attributed to the expected behavior that an investor will not sell a security (asking price) for lower than the price they are willing to pay for it (bidding price).

How Bid/Ask Is Quoted for T-Bills

Since 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 2.35 percent, ask 2.25 percent. At first glance, the bid seems higher than the ask, but upon further inspection, you may notice that the ask is actually higher. The reason for this is that a T-bill is a discount bond and these percentages are the quoted yields, not the actual prices.

If we convert the bid and ask discount yields into the dollar amounts of the prices, we get a bid of $97.65 and an ask of $97.75. 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 97.65 and an ask of 97.75.

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. What do the bid and ask prices represent on a stock quote?

    The bid and ask prices are stock market terms representing the supply, or the shareholder, and demand, or investor, for a ... Read Answer >>
  2. Are treasury bills a good investment for retirement savings?

    Find out whether Treasury bills (T-bills) are a smart investment for retirement, and learn why opportunity cost is a significant ... Read Answer >>
  3. What's the difference between bills, notes and bonds?

    Treasury bills (T-Bills), notes, and bonds are marketable securities that the U.S. government sells to pay off maturing debt ... Read Answer >>
  4. Why are T-Bills used when determining risk-free rates?

    The risk-free rate is hypothetical, as every investment has some risk associated with it. Treasury bills are the closest ... Read Answer >>
  5. Why are the bid and ask quotes usually so far away from each other in after-hours ...

    The low volumes typically traded through after-hours trading systems can create wide bid-ask spreads. Read Answer >>
Related Articles
  1. Investing

    The Basics Of The T-Bill

    The U.S. government has two primary methods of raising capital. One is by taxing individuals, businesses, trusts and estates; and the other is by issuing fixed-income securities that are backed ...
  2. Investing

    The History Of The T-Bill Auction

    Learn how the U.S. found the perfect solution to its debt problems and ended up creating one of the largest markets in the world.
  3. Personal Finance

    Illegal Interview Questions To Watch Out For

    If you were ever asked any of these questions during an interview you shouldn't have been, because they are illegal.
  4. Investing

    How Risk Free Is the Risk-Free Rate of Return?

    This rate is rarely questioned—unless the economy falls into disarray.
  5. Insights

    Investors Share Their Fears Following Election

    We asked, and you answered: what's your biggest financial concern after the 2016 election?
  6. Insights

    Twitter Stock Falls 16.28% in Pre-Market Trading After Report Says Google, Apple Won't Bid (TWTR, AAPL)

    Three potential suitors are said to be not interested in Twitter. This leaves only Microsoft and Salesforce from among the names suggested to be interested in the company.
  7. Investing

    Getting To Know The Money Market

    If you need liquidity and safety on a sum of money, don't forgo potential interest by keeping the funds as cash.
RELATED TERMS
  1. Best Bid

    Best bid is the highest quoted bid for a particular security ...
  2. Bid Price

    Bid price is the price a buyer is willing to pay for a security. ...
  3. Bid Size

    The bid size represents the minimum quantity of a security that ...
  4. One-Man Picture

    A one man picture is when a security's bid price and ask price ...
  5. Level 3

    Level 3 is the highest level of quotes provided by a trading ...
  6. Bid and Ask

    The term "bid and ask" refers to a two-way price quotation that ...
Trading Center