![]() The public may purchase securities online through TreasuryDirect or directly from commercial banks. Federal Reserve Banks no longer sell Treasury debt directly to the public. Money and Capital Markets, Irwin, Boston. Federal Reserve Bulletin, December 2000, Board of Governors of the Federal Reserve System, Statistical Table 1.41, page A27, Gross Public Debt of U.S. Yields on T-bills are calculated using the bank discount method, as shown below:ġ. The difference between the auction sales price and the value of the T-bill at maturity represents the income from the T-bill. Inflation and inflation expectations also are factors in determining interest rates-for example, periods of relatively high (low) rates of inflation usually are associated with relatively high (low) interest rates on T-bills (see chart, below).ĪPPENDIX: Calculating Yields on Treasury Bills for Comparison Purposes.Monetary policy actions by the Federal Reserve-Fed actions that affect the Federal funds rate likely will influence interest rates for other close substitutes, including short-term T-bills.Economic conditions may influence rates-for example, Rose (1994) notes that T-bill rates typically rise during periods of business expansion and fall during recessions.government-for example, federal budget surpluses in 1998-2000 have reduced the supply of some Treasury securities issues. Demand for risk-free fixed-income securities in general-For example, a "flight to safety" caused by concerns about default or liquidity risk in other financial markets may cause investors to shift to T-bills to avoid risk.Here are several factors you might want to consider: 5 Many factors may affect Treasury bill interest rates in general, as well as rates for specific issues of Treasury securities, in particular. What Moves Treasury Bill Interest Rates Up and Down? The prices and yields for existing T-bills are determined in the secondary market. The prices for new T-bills (and yields-see Appendix) are determined by supply and demand conditions at each auction. 3 4 The auctions (see ) take place as part of the Treasury's effort to manage the federal debt. Treasury sells 3-month and 6-month Treasury bills at weekly competitive auctions. Treasury debt, including T-bills, in their portfolios. They are important financial instruments to individuals, financial institutions, corporations, governments and the Federal Reserve System, all of which hold sizeable amounts of U.S. 1 T-bills are liquid there is an active secondary market where they may be traded. The December 2000 Federal Reserve Bulletin reported $616.2 billion in Treasury bills were outstanding at the end of the third quarter of 2000. The large and liquid Treasury bill market plays an important role in the financial system. Moreover, because T-bills mature in less than one year-most mature in several months-they do not have a large interest rate risk component, either. ![]() Treasury bills (T-bills) to be the safest short-term financial instrument because these debt obligations are perceived to have no default risk. ![]()
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