Treasury Bills, also called T-bills, are a type of securities issued by the U.S. Department of Treasury. Treasury Bills differ from Treasury notes and Treasury bonds for the shorter maturity, which is up to one year. Currently, the U.S. Department of Treasury issues securities with short maturity as discount securities: the interest corresponded is the difference between the purchase price and a contractually fixed amount paid at maturity (face value or maturity value). This implies that T- Bills are sold at a discount rate from face value (maturity value). Is possible to buy T-Bills in a treasury auction in two ways: by submitting a competitive bid, through a bank, broker, or dealer or by submitting a noncompetitive bid through a bank, broker, or dealer or through an account in Treasury Direct and Legacy Treasury Direct. In the first case, an investor can buy up to 35% of the initial offering amount, whereas in the latter it is possible to purchase up to $5 million. In the secondary market T- Bills are quoted on a bank discount basis:

The yield is computed as follows:

Y= annualised yield
D= dollar discount (Face value - Price)
F = face value
t = number of days remaining to maturity

Therefore, the price is computed by deriving the dollar discount and by computing the difference from the face value:

The Discount Yield can be a misleading measure of the return on T-Bills because it is an annualised rate of return based on the par value of the bills rather than on the actual dollar amount invested, and it is calculated on a 360-day basis rather than on a 365-day basis (used for Treasury bonds and notes).

FABOZZI F., MODIGLIANI F. and JONES F. (2010), Foundation of Financial Markets and Institutions, Pearson International Edition.

Editor: Bianca GIANNINI

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