What Influences Treasury Bill Rates?
The yield on Treasury bills, also known as T-bills, is influenced by a number of factors, including the current Fed rate and the rate of inflation.
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Updated July 9.
Rates are rising: After trading as low as 4.01% in late June, the rate on 4-week T-bills has rebounded so far in July to levels seen earlier in the year. The rate has held at 4.23% on July 8 and 9 after hitting 4.25% on July 7.
Treasury bills (T-bills) are short-term debt securities issued by the federal government that mature in increments that range from four weeks to a year.
They differ from other Treasury-issued securities (like T-bonds and T-notes) by those shorter maturity periods and because they don’t pay periodic interest rates. Instead, T-bills are auctioned by the government at a discount to their face value, and the total return amounts to the difference between what you paid and the face value at maturity.
Factors that influence T-bill yields
Here are some of the factors that influence T-bill yields:
Interest rates: T-bill returns tend to move in tandem with the federal funds rate, or Fed rate.
Term: Typically, the longer the term, the higher the yield (and thus, the lower the price relative to face value). This is because investors take a greater risk that rates will go up as they tie up their money for longer periods.
Inflation: If the annualized yield on a T-bill falls below the rate of inflation, it becomes less attractive to investors, as they would in effect lose money on their investment.
Macroeconomic conditions: In a robust and expanding economy, investors have many options, and T-bill and other bond prices will likely fall (thus increasing the yield) to stay competitive. Conversely, in times of uncertainty, demand for T-bills and their relative safety can increase. This pushes the price higher.
»MORE: For a detailed look at how T-bills work, and how to buy them, check out NerdWallet’s beginner’s guide to T-bills.
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