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.
US Government quotes can be presented with a dash, colon or period. Although you don't see a fraction above, the quote translates to a bond price of 95 and 328 percent of par. The number on the right side of the quote (after the dash, colon, or period) is always assumed to be in 32nds.
Bonds have an inverse relationship to interest rates. When interest rates rise, bond prices usually fall, and vice-versa. To those unfamiliar with bond trading, the negative correlation between interest rates and bond prices may be counterintuitive.
Treasury bonds are government securities that have a 20-year or 30-year term, and they pay a fixed interest rate on a semi-annual basis. They earn interest until maturity and the owner is also paid a par amount, or the principal, when the Treasury bond matures.
The interest rate on a Series I savings bond changes every 6 months, based on inflation. The rate can go up. The rate can go down. The overall rate is calculated from a fixed rate and an inflation rate.
For example, if a bond is quoted at 99 in the market, the price is $990 for every $1,000 of face value and the bond is said to be trading at a discount. If the bond is trading at 101, it costs $1,010 for every $1,000 of face value and the bond is said to be trading at a premium.
I bonds are meant for longer-term investors. If you don't hold on to your I bond for a full year, you will not receive any interest. You must create an account at TreasuryDirect to buy I bonds; they cannot be purchased through your custodian, online investment account, or local bank.
Choosing between a CD and Treasuries depends on how long of a term you want. For terms of one to six months, as well as 10 years, rates are close enough that Treasuries are the better pick. For terms of one to five years, CDs are currently paying more, and it's a large enough difference to give them the edge.
For example, suppose an investor purchases a 52-week T-bill with a face value of $1,000. The investor paid $975 upfront. The discount spread is $25. After the investor receives the $1,000 at the end of the 52 weeks, the interest rate earned is 2.56% (25 / 975 = 0.0256).
If you buy bonds toward the end of a period when rates are rising, you can lock in high coupon yields and also enjoy the increase in the market value of your bond once rates start to come down.
If an investor is looking for reliable income, now can be a good time to consider investment-grade bonds. If an investor is looking to diversify their portfolio, they should consider a medium-term investment-grade bond fund which could benefit if and when the Fed pivots from raising interest rates.
The US Department of the Treasury borrows from the investing public through bonds that are repaid with a set interest rate, usually over a longer period. The bonds are currently offered with maturities of 20 or 30 years and pay simple interest every six months until maturity.
Bonds typically pay a fixed amount of interest (usually paid twice per year). Interest from corporate bonds and U.S. Treasury bonds interest is typically taxable at the federal level. U.S. Treasuries are exempt from state and local income taxes.
3 Month Treasury Bill Rate is at 4.85%, compared to 4.89% the previous market day and 5.31% last year. This is higher than the long term average of 4.19%.
Treasury bills, or bills, are typically issued at a discount from the par amount (also called face value). For example, if you buy a $1,000 bill at a price per $100 of $99.986111, then you would pay $999.86 ($1,000 x . 99986111 = $999.86111). * When the bill matures, you would be paid its face value, $1,000.
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.
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.
After 20 years, it doubled in value ($1,000) and continued to earn interest ($600) until reaching maturity after 30 years. If you redeem your bond today, you can redeem it for $1,600 and spend that on goods or services or reinvest that money in a new savings bond.
Introduction: My name is Duane Harber, I am a modern, clever, handsome, fair, agreeable, inexpensive, beautiful person who loves writing and wants to share my knowledge and understanding with you.
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