Treasury Bill Calculator

A Treasury bill carries no coupon, so its entire return comes from buying below par and being redeemed at par. Dealers quote bills not as a yield on money invested but as a bank discount rate, which measures the dollar discount against the face value using a 360-day year: Price = Face x (1 - d x t / 360). That convention understates the true return twice over, because it divides by the larger face amount rather than the smaller price paid, and because it uses 360 rather than 365 days. Converting a 5.25 percent discount rate on a 91-day, 10,000 dollar bill gives a price of 9,867.29 dollars, a 132.71 dollar gain, a money market yield near 5.32 percent on a 360-day basis, a bond equivalent yield of about 5.394 percent, and an effective annual yield near 5.47 percent once quarterly rollover compounding is included. Bills are auctioned in 4-week, 8-week, 13-week, 17-week, 26-week, and 52-week tenors, with a 100 dollar minimum and 100 dollar increments through TreasuryDirect. Interest is exempt from state and local income tax but fully taxable federally as ordinary interest, which is why a state tax comparison against a bank deposit is not optional. Practical caveats include reinvestment risk, since the effective annual yield assumes rolling at an unchanged rate that will move with Federal Reserve policy; secondary market price risk if the bill is sold before maturity; and the fact that bond equivalent yield for bills longer than about 182 days uses a different, semiannual-compounding formula than the simple 365-day version applied to shorter bills.

The United States began issuing Treasury bills in 1929 under authority from the Act of September 24, 1917, the same Second Liberty Bond Act that framed federal borrowing during the First World War. The instrument was proposed to replace the older system of certificates of indebtedness, which were sold at fixed prices set in advance by the Treasury. Selling short-dated paper at a discount through competitive auction let the market rather than the Treasury set the price, and it eliminated the coupon payment machinery entirely for maturities under a year. The design borrowed directly from the British Treasury bill, introduced in 1877 on the recommendation of Walter Bagehot, which had used the same discount-and-auction mechanism for decades. The modern structure was built out in stages. Regular weekly 13-week auctions became routine in the 1930s, the 26-week bill was added in the late 1950s, and the 52-week bill ran from 1963. Bills moved to book-entry form on the Federal Reserve system in the 1970s, ending physical certificates. The uniform-price, or Dutch, auction format was tested for two-year and five-year notes in 1992 following the Salomon Brothers bidding scandal of 1991 and was extended to all marketable Treasury securities, including bills, in 1998. TreasuryDirect opened online retail purchasing in 1986 in an earlier form and was relaunched as a web system in 2002, and the 4-week bill was introduced in 2001, with the 8-week added in 2018 and the 17-week made a benchmark tenor in 2022.