What is a Treasury bill and how does it work?

Auctioned every week, the Treasury bills (or T-bills) are short-term debt obligations issued by the U.S. government. T-bills are issued through a competitive bidding process at a discount or at par (face value). Based on the investor’s demand for the bill, interest rates are determined at the auction. A group of 20 securities dealers, known as primary dealers, are authorized and obligated to submit competitive tenders at the Treasury auction. When a bill matures, the investor receives the face value. The difference between the purchase price and the face value equals the interest earned.

A range of Treasury bills issued to public comes with various maturities not exceeding one-month to thirty years to match the needs of the investor. Four-week bills are normally auctioned on Tuesdays. Three-month bills(13-week) and six-month bills (26-week bills) are auctioned on Mondays. Fifty-two-week bills are normally auctioned on Tuesdays, every four weeks.

Why was the 3-month Treasury bill auction strong last week?Auction highlights for a three-month Treasury bill

The U.S. Treasury Department auctioned $25 billion in three-month T-bills last week. The bills were auctioned at a discount of 0.05%, unchanged from the previous week’s issuance. Since T-bills don’t pay interest rate they are always sold at a discount or at par value.

Last week, the three-month T-bill interest rate remained neutral in line with the Federal funds rate target. In spite of that, the bid/cover ratio was 5.02x higher than the previous week’s 4.96x for the same amount of issuance, implying higher investor demand. The bid/cover ratio measures the total dollar amount of bids for a particular auction compared to the actual amount of debt sold. The higher the ratio, the more people will want to buy that debt.

In conjunction to the three-month Treasury bill interest rate, the bond prices for the ultra short-term trading equivalents including SPDR Barclays 1-3 Month T-Bill (BIL) remained unchanged. SPDR Barclays 1-3 Month T-bill (BIL) seeks to provide investment results that, before fees and expenses, generally correspond to the price and yield performance of an index that tracks the 1-3 month sector of the U.S. Treasury bill market.

For the investors considering to have government T-bills and bonds in their investment portfolio may consider iShares Short Treasury Bond (SHV), iShares 1-3 Year Treasury Bond (SHY) and iShares Barclays 20+ Yr Treasury Bond Fund (TLT).

Latest articles

Last week (ended August 16) was rough for Canopy Growth (WEED)(CGC) stock. It fell about 14% after the company's fiscal 2020 first-quarter earnings report.

Apple shares rose close to 3% in early hour trading on Monday. So, why is Apple stock trading higher? The market sentiment might have turned positive.

In April, Amazon announced its plan to transform its free two-day shipping program to a free one-day shipping program for its Prime customers.

Cannabis companies face regulatory challenges. Recently, CannTrust (CTST) didn't comply with Health Canada’s regulations.

China’s state media agency, Xinhua News Agency, reported on August 18 that police had seized a FedEx parcel containing a handgun.

As of August 17, Curaleaf Holdings (CURA) (CURLF) was trading at 9.00 Canadian dollars—a fall of 13.5% in August.