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Treasury Bills  Quotation  – How T-bill is quoted in the market

Treasury Bills Quotation  – How T-bill is quoted in the market

Treasury bills, or T-bills, are short-term debt instruments issued by the U.S Treasury. T-bills are issued for a term of one year of less. Three types of Treasury bills (T-bills) are issued with the following short maturities: 13 weeks (91 days), 26 weeks (182 days), and 52 weeks (365 days). The 13 and 26 week T-bills are auctioned by the Treasury every week on Mondays and issued on the following Thursday.

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The 52-week T-bills are auctioned every fourth Thursday and issued the following Thursday. Quotations are provided in units of discount rate in an annualized simple interest form. The smallest incremental unit is a basis point, where 1 basis point is 1/100 of 1%.

T-bills are considered the world’s safest debt as they are backed by the full faith and credit of the United States government. They do not pay interest, but rather are sold a discount to their face value. The full-face value is paid at maturity, and the difference between the discounted purchase price and the full-face value equates to the interest rate.

Treasury Bills Quotation are follows:

Maturity Bid Ask Change Yield
28/10/2019 0.03 0.02 -0.01 0.03

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In our case consider bond was purchased for 180 days.

Maturity: It is a date on which investor can redeem bond for its face value.

Bid: It represents Interest rate which buyer wish to get paid. In order to properly calculate face value we needs to convert this Bid percentage into actual price of bond. This involves multiplying bid percentage with 100 and days remaining for bond maturity. Further it is divided by 360 and the resultant value is subtracted from 10,000.

0.03 * 100 * 180 / 360 = $ 1.5 à $10,000 – $1.5 = $9998.5

In the above example, buyer of T-bill is willing to pay $9998.5 which will be redeemed at $10,000 in 180 days.

Ask: It represent interest rate which seller is willing to pay. We can calculate Ask price from its percentage using the same method as we did for Bid price.

0.02 * 100 * 180 /360 = $ 1 à $10,000 – $1 = $9999

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Here the seller is willing to accept $9,999 for a bill that will be redeemed for $10,000 in 180 days.

The Change of -0.01 in the quotation is the difference between the present day’s listed bid and the preceding day’s bid, in hundredths of a percentage point, called “basis points.

The Yield is based on the ask rate and is the annualized rate of return if held to maturity.

 

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