Treasury Bill

What Are Treasury Bills?

Treasury bills (T-bills) are short-term US government debt securities issued at a discount to face value. They mature in 4, 8, 13, 17, 26, or 52 weeks. T-bills do not pay coupons; the investor's return is the difference between the purchase price and the face value paid at maturity.

The Treasury auctions T-bills on regular cycles. Auctions use a single-price Dutch auction format: all winning bidders pay the highest accepted yield. The auction results determine T-bill yields for that tranche; secondary market trading then provides continuous pricing.

The FRED tickers for T-bill yields include DGS3MO (3-month), DTB3 (3-month secondary market rate), and DTB4WK (4-week).

Why T-Bills Matter

T-bill yields are the practical proxy for the risk-free rate in global finance. They appear in:

• Capital asset pricing models (CAPM) as the risk-free rate.
• Money market fund yields, which closely track T-bill rates.
• The short end of the Treasury yield curve, which anchors all other interest rates.
• Cross-border interest rate parity calculations.
• Many derivatives pricing models.

T-bills are also the primary liquid asset for institutional cash management. Money market funds hold trillions of dollars of T-bills as the safest available short-term instrument. Banks hold T-bills as high-quality liquid assets for regulatory purposes.

How to Read T-Bill Yields

T-bill curve shape. The 4-week, 13-week, 26-week, and 52-week yields form the front end of the Treasury curve. Inversions of this curve (3-month yielding more than 12-month) historically have been recession indicators.

T-bill vs Fed funds spread. T-bills should trade slightly below Fed funds in normal conditions because they are risk-free and don't tie up bank balance sheets. Persistent T-bills above Fed funds signals scarcity (high demand for risk-free instruments) or expectations of Fed easing.

Bid-to-cover ratio. The Treasury publishes bid-to-cover ratios for each auction (total bids submitted vs amount accepted). High ratios (>3.0) signal strong demand; low ratios (<2.0) signal weak demand.

Foreign buyer participation. The Treasury also publishes percentage of the auction going to indirect bidders (foreign central banks and others bidding through dealers). Declining indirect participation can signal foreign demand softening.

Historical Context

T-bill yields have ranged from near zero (2008-2015 ZIRP era) to over 16% (early 1980s Volcker era). The 2010-2019 expansion saw 3-month T-bill yields rise from near zero to a peak of 2.5% in 2019. The 2022-2023 hiking cycle drove 3-month T-bills to 5.5% by mid-2023. Through 2024-2025, post-cut readings have stabilized around 3.5-4.0%.

Watch the 3-month T-bill (DGS3MO) as the cleanest single read on near-term Fed policy expectations. Watch the 52-week (DTB52) for the market's expected path over the next year.