This page explains pricing and interest rates for the five different Treasury marketable securities.
For information on recent auctions, see Results of recent auctions
Bills
Bills are short-term securities that mature in one year or less. They are sold at face value (also called par value) or at a discount. When they mature, we pay you the face value.
The difference between the face value and the discounted price you pay is "interest."
To see what the purchase price will be for a particular discount rate, use the formula:
Price = Face value (1 – (discount rate x time)/360)
Example:
A $1,000 26-week bill sells at auction for a discount rate of 0.145%.
Price = 1000 (1 – (.00145 x 182)/360) = $999.27
The formula shows that the bill sells for $999.27, giving you a discount of $0.73. When you get $1,000 after 26 weeks, you have earned $0.73 in "interest."
Bonds and Notes
Bonds are long-term securities that mature in 20 or 30 years.
Notes are relatively short or medium-term securities that mature in 2, 3, 5, 7, or 10 years.
Both bonds and notes pay interest every six months. The interest rate for a particular security is set at the auction.
The price for a bond or a note may be the face value (also called par value) or may be more or less than the face value. The price depends on the yield to maturity and the interest rate.
If the yield to maturity is
the price of the bond or note will be
greater than the interest rate
less than par value
equal to the interest rate
par value
less than the interest rate
more than par value
The "yield to maturity" is the annual rate of return on the security.
Here are examples from recent auctions:
Type of security
Time to maturity
High yield at auction
Interest rate set at auction
Price
Bond
20 year
1.850%
1.750%
98.336995
Note
7 year
1.461%
1.375%
99.429922
In both examples, the yield is higher than the interest rate. Therefore, the price was lower than par value.
During the life of the bond or note, you earn interest at the set rate on the par value of the bond or note. The interest rate set at auction will never be less than 0.125%.
If you still own the bond after 20 years or the note after seven years, you get back the face value of the security. That means you will have also earned $1.66 for every $100 par value of your bond and $0.57 for every $100 par value of your note.
TIPS
Treasury Inflation-Protected Securities (TIPS) are available both as medium and long-term securities. They mature in 5, 10, or 30 years.
Like bonds and notes, the price and interest rate are determined at the auction.
The interesting aspect of TIPS, that differs from bonds and notes, is that the principal goes up and down with inflation and deflation. While the interest rate is fixed, the amount of interest you get every six months may vary due to any change in the principal.
To calculate the inflation-adjusted interest you will get, near the time your interest payment is due, follow these steps:
Locate your TIPS on the TIPS Inflation Index Ratios page.
Follow the link and locate the Index Ratio that corresponds to the interest payment date for your security.
Multiply your original principal amount by the Index Ratio. (this is your inflation-adjusted principal).
Now, multiply your inflation-adjusted principal by half the stated interest (coupon) rate on your security.
The resulting number is your semi-annual interest payment.
Example:
You have $1,000 invested in a 5-year TIPS with an interest rate of 0.125%. You will get an interest payment next week and want to know how much it will be.
When you look up the Index Ratio for your TIPS, you see it is 1.01165. Multiplying your $1,000 by 1.01165, you get your adjusted principal: $1,011.65.
For this six-month payment, you get half of 0.125% (your annual interest rate), which is 0.0625%.
Turn the percent into a decimal by moving the decimal point two places to the left: 0.000625.
Now, multiply the adjusted principal by the half-year interest rate: In this example, multiplying $1,011.65 times 0.000625 gives you your expected interest payment: $0.63.
Floating Rate Notes (FRNs)
FRNs are relatively short-term investments that mature in two years.
The price of an FRN is determined at auction. The price may be greater than, less than, or equal to the FRN's par amount.
The interest rate of an FRN changes, or “floats,” over the life of the FRN.
The interest rate is the sum of two parts: an index rate and a spread.
Index rate - The index rate of your FRN is tied to the highest accepted discount rate of the most recent 13-week Treasury bill. We auction the 13-week bill every week, so the index rate of an FRN is reset every week. You can see the daily index for current FRNs.
Spread - The spread is a rate we apply to the index rate. The spread stays the same for the life of an FRN. The spread is determined at auction when the FRN is first offered. The spread is the highest accepted discount margin in that auction.
The spread plus the index rate equals the interest rate.
We apply the interest rate to an FRN's par amount daily. The aggregate interest earned to date on an FRN accumulates every day.
A bond is simply a loan, after all, and the principal balance, or par value, is the loan amount. So, if a bond is quoted at $98.90 and you were to buy a $100,000 twenty-year Treasury bond (Treasury note), you would pay ~$98,900.
We sell Treasury Bonds for a term of either 20 or 30 years. Bonds pay a fixed rate of interest every six months until they mature. You can hold a bond until it matures or sell it before it matures.
The auction prices show how much the buyers paid for the bonds compared to the market price before the auction ended (the “snap price”). If the buyers paid more than the snap price, they overbid.If they paid less, they underbid.Overbidding means high demand and underbidding means low demand for the bonds.
Key takeaways. Treasury bills have short-term maturities and pay interest at maturity. Treasury notes have mid-range maturities and pay interest every 6 months. Treasury bonds have long maturities and pay interest every 6 months.
The price for a bond or a note may be the face value (also called par value) or may be more or less than the face value. The price depends on the yield to maturity and the interest rate. The "yield to maturity" is the annual rate of return on the security. In both examples, the yield is higher than the interest rate.
T-bills are issued with 3-, 6- or 12-month maturities. When you purchase a T-bill, you pay less than the face (or par) value.When the T-bill matures, you receive par value of the T-bill. T-bills aren't like coupon bonds, which pay interest in increments.
A bond is a loan that the bond purchaser, or bondholder, makes to the bond issuer. Governments, corporations and municipalities issue bonds when they need capital. An investor who buys a government bond is lending the government money. If an investor buys a corporate bond, the investor is lending the corporation money.
When evaluating the potential performance of a bond, investors need to review certain variables. The most important aspects are the bond's price, its interest rate and yield, its date to maturity, and its redemption features.
It is quoted in relation to 100, no matter what the par value is. Think of the bid price as a percentage: a bond with a bid of 93 means it is trading at 93% of its par value. The yield indicates annual return until the bond matures. Usually this is the yield to maturity, not current yield.
There are several ways to buy Treasuries. For many people, TreasuryDirect is a good option; however, retirement savers and investors who already have brokerage accounts are often better off buying bonds on the secondary market or with exchange-traded funds (ETFs).
Remember - Treasury bills are quoted in yield form, not with prices. Yields are inversely related to prices - the lower the yield, the higher the price, and vice versa. Therefore, a yield of 3.2% will represent a lower-priced T-bill than one with a yield of 3.1%.
The yield curve has three shapes: upward-sloping, or positive, downward-sloping, or inverted, and flat. A positive, upward-sloping yield curve occurs when yields of shorter maturities are lower than yields of longer maturities.
3 Month Treasury Bill Rate is at 5.25%, compared to 5.25% the previous market day and 5.16% last year. This is higher than the long term average of 4.19%. The 3 Month Treasury Bill Rate is the yield received for investing in a government issued treasury security that has a maturity of 3 months.
Compared with Treasury notes and bills, Treasury bonds usually pay the highest interest rates because investors want more money to put aside for the longer term. For the same reason, their prices, when issued, go up and down more than the others.
Visit the TreasuryDirect website and navigate to the “Tools” section, where you'll find the Savings Bond Calculator. Enter the required information for each bond such as the series, denomination, serial number and issue date. The calculator will display the bond's current value, including interest earned to date.
As a simple example, say you want to buy a $1,000 Treasury bill with 180 days to maturity, yielding 1.5%. To calculate the price, take 180 days and multiply by 1.5 to get 270. Then, divide by 360 to get 0.75, and subtract 100 minus 0.75. The answer is 99.25.
Treasury yields also show how investors assess the economy's prospects. The higher the yields on long-term U.S. Treasuries, the more confidence investors have in the economic outlook. But high long-term yields can also be a sign of rising inflation expectations.
Introduction: My name is Wyatt Volkman LLD, I am a handsome, rich, comfortable, lively, zealous, graceful, gifted person who loves writing and wants to share my knowledge and understanding with you.
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