What Is a Treasury Bill Rate?

by Tim Plaehn ; Updated July 27, 2017

Treasury bills are issued by the U.S. Treasury as short-term debt instruments. Treasury bills are auctioned every week by the Treasury and there is a very large secondary market for the purchase of government securities. Treasury bills ("T-bills") are considered to be one of the safest short-term investments.

Identification

Treasury bills are U.S. government debt securities that have a maturity of one year or less. Bills are issued with maturities of four weeks, 13 weeks, 26 weeks and 52 weeks. The Treasury sells bills through an auction process where bids are taken for the yield investors will accept and the Treasury accepts the best rates for the amount of bills being offered. The three shorter-term bill maturities are auctioned every week and the 52-week Treasury bill is auctioned every four weeks.

Significance

The auction prices of Treasury bills set the base rates for short-term interest rates. Treasury bill rates are what investors can earn with a short-term safe investment. Treasury bill rates are reported by the financial news organizations to show the level of short-term rates. Rates on Treasury bills are set by market action, but the Federal Reserve bank has a lot of influence on T-bill rates when it sets the discount and federal funds rates.

Features

Treasury bills are sold at a discount to the face amount and the interest earned is the difference between the purchase price and the face amount. Treasury bills do not make interest payments to investors. For example, an investor may purchase a Treasury bill for $9,900 that matures at $10,000. The $100 difference is the interest earned on the bill. The rate of interest depends on the number of days until the T-bill matures. If the T-bill matured in a year, the rate would be about 1.01 percent. If this was a 26-week bill the rate would be just over 2 percent.

Considerations

At the end of 2010, Treasury bill rates were at levels well below one-half of one percent. For the second week in November 2010, the one-month to six-month bills were yielding around 0.15 percent and the one-year T-bill had a yield of 0.22 percent. At these levels, an investor buying a $100,000 Treasury bill would earn just over $10 per month on the shorter terms and $220 in interest on a $100,000 investment for a whole year.

Purchase

Individual investors can purchase Treasury bills from a broker or directly from the Treasury. Direct investment is accomplished by opening an account at the TreasuryDirect.com website. Individual investors who purchase direct can place a noncompetitive bid for auctioned Treasury securities. Noncompetitive bid offers are filled at the best rate of the winning competitive bids.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.