Treasury Bills Rates – How Are They Determined?

Treasury Bills

Treasury bills, commonly called T-bills, are securities which mature less than one year from the date issued, but how are the rates for these bills determined? Unlike coupon bonds and other bond types which pay interest until maturity, T-bills do not pay an income while awaiting maturity. Instead, Treasury bills are auctioned off, with each security having a one thousand dollar face value. The bills are purchased at a discount instead of paying interest payments, and the rate for a specific bill is determined by what investors are willing to pay at auction for the security. There is no interest rate involved, because the return for the bill is received when it matures.

TIPS bonds offer inflation protection with an interest rate that adjusts for inflation, but T-bills do not adjust and are not inflation protected. This is not a big concern because Treasury bills have a short term maturity date, so it is very unlikely that inflation will rise very much in this short period of time. Since the bills are only available in three maturity schedules, which is four weeks, thirteen weeks, and twenty six weeks. I bonds interest rates are adjusted for inflation and this offers security, and can be ideal because these bonds are usually held for the long term unlike T-bills.

The rates for Treasury bills are determined at auction, and can be as high or low as investors will allow. There is a limit per auction of five million dollars worth of these securities, and they are intended for short term investment only. These government securities offer a lower risk than investing in Barclays tips bond fund or another fund or bond type, and have a guaranteed payout amount when the bill matures. For many investors T-bills can be a fantastic choice for money that is not needed within the short maturity period chosen.

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