Treasury bills
We shall use examples from the UK and US Treasury bills to explain how these instruments are valued and how the returns on them are calculated.
Table 14.1 shows the results from the four sales of UK Treasury bills which took place weekly during March 2014, on the 7th, 14th, 21st and 28th.
As different bidders pay different prices, a bill's tender results are averaged. Each bidder therefore must work out their own results to give them accurate information about their investment.Table 14.1 DMO Treasury bill tender results 1 March 2014 to 31 March 2014
| Tender date | Issue date | Redemption date | Nominal amount (£m) | Bid to cover ratio | Average yield (%) | Average price (£) |
| 1 month | ||||||
| 07-Mar-14 | 10-Mar-14 | 07-Apr-14 | 2,000 | 2.21 | 0.393578% | 99.969817 |
| 14-Mar-14 | 17-Mar-14 | 14-Apr-14 | 2,000 | 3.30 | 0.364505% | 99.972046 |
| 21-Mar-14 | 24-Mar-14 | 22-Apr-14 | 2,000 | 1.85 | 0.381211% | 99.969721 |
| 28-Mar-14 | 31-Mar-14 | 28-Apr-14 | 2,000 | 1.62 | 0.407344% | 99.968761 |
| 3 months | ||||||
| 07-Mar-14 | 10-Mar-14 | 09-Jun-14 | 1,500 | 2.64 | 0.363186% | 99.909534 |
| 14-Mar-14 | 17-Mar-14 | 16-Jun-14 | 2,000 | 3.09 | 0.379104% | 99.905573 |
| 21-Mar-14 | 24-Mar-14 | 23-Jun-14 | 2,000 | 1.95 | 0.390464% | 99.902746 |
| 28-Mar-14 | 31-Mar-14 | 30-Jun-14 | 2,000 | 1.51 | 0.421457% | 99.895035 |
| 6 months | ||||||
| 07-Mar-14 | 10-Mar-14 | 08-Sep-14 | 1,500 | 2.87 | 0.409168% | 99.796392 |
| 14-Mar-14 | 17-Mar-14 | 15-Sep-14 | 1,500 | 3.23 | 0.394030% | 99.803910 |
| 21-Mar-14 | 24-Mar-14 | 22-Sep-14 | 1,500 | 2.17 | 0.400866% | 99.800515 |
| 28-Mar-14 | 31-Mar-14 | 29-Sep-14 | 1,500 | 1.70 | 0.422876% | 99.789585 |
Source: www.dmo.gov.uk
Example 14.3
UK three-month Treasury bill
If we take the three-month Treasury bill sold at tender on 24 March at a discount price of £99.902746, we can work out the discount yield (d), yield (bey) and purchase price. Note that the time difference between the date of purchase and redemption is only 91 days in this case and we must express these interest rates in annual terms, so we multiply by 365/91.
Discount yield
Yield (bey) (on the purchase price)
More on the topic Treasury bills:
- US Treasury bills, notes and bonds
- Treasury bills
- US Treasury bills
- INDEX
- Commercial paper
- SERIES BASED ON ALPHABETS
- THE PORTFOLIO CONCEPT
- A closer look at liquidity risk
- Liquidity management and reserves
- Public expenditure