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.
Bonds are quoted as a percentage of their $1,000 or $100 face value. 7 For example, a quote of 95 means the bond is trading at 95% of its initial face value. Face value quotes allow you to easily calculate the bond's dollar price by multiplying the quote by the face value.
Bond prices move in inverse fashion to interest rates, reflecting an important bond investing consideration known as interest rate risk. If bond yields decline, the value of bonds already on the market move higher.
Bills are sold at a discount. The discount rate is determined at auction. Bills pay interest only at maturity. The interest is equal to the face value minus the purchase price.
The actual rate of interest for an I bond is calculated from the fixed rate and the inflation rate. The combined rate changes every 6 months. It can go up or down. I bonds protect you from inflation because when inflation increases, the combined rate increases.
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. In both examples, the yield is higher than the interest rate.
Remember - Treasury bills are quoted in yield form, not with prices. Yields are inversely related to prices - the lower the yield, the higher the price, and vice versa. Therefore, a yield of 3.2% will represent a lower-priced T-bill than one with a yield of 3.1%.
Most bonds pay a fixed interest rate that becomes more attractive if interest rates fall, driving up demand and the price of the bond. Conversely, if interest rates rise, investors will no longer prefer the lower fixed interest rate paid by a bond, resulting in a decline in its price.
Unless you are set on holding your bonds until maturity despite the upcoming availability of more lucrative options, a looming interest rate hike should be a clear sell signal.
Most bonds and interest rates have an inverse relationship. When rates go up, bond prices typically go down, and when interest rates decline, bond prices typically rise.
How Treasury bills work. Treasury bills are assigned a par value (or face value), which is what the bill is worth if held to maturity. You buy bills at a discount — a price below par — and profit from the difference at the end of the term.
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.
You can hold Treasury bills until they mature or sell them before they mature. To sell a bill you hold in TreasuryDirect or Legacy TreasuryDirect, first transfer the bill to a bank, broker, or dealer, then ask the bank, broker, or dealer to sell the bill for you.
Key Points. Pros: I bonds come with a high interest rate during inflationary periods, they're low-risk, and they help protect against inflation. Cons: Rates are variable, there's a lockup period and early withdrawal penalty, and there's a limit to how much you can invest.
§ 359.16 When does interest accrue on Series I savings bonds? (a) Interest, if any, accrues on the first day of each month; that is, we add the interest earned on a bond during any given month to its value at the beginning of the following month.
I savings bonds earn interest monthly. Interest is compounded semiannually, meaning that every 6 months we apply the bond's interest rate to a new principal value. The new principal is the sum of the prior principal and the interest earned in the previous 6 months.
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.
An investor can use cumulative interest to calculate a bond's performance by summing the interest paid over a set period. However, there are other more comprehensive methods, such as effective annual yield. Bonds' interest rates, also known as the coupon rate, can be fixed, floating, or only payable at maturity.
We sell Treasury Bonds for a term of either 20 or 30 years. Bonds pay a fixed rate of interest every six months until they mature. You can hold a bond until it matures or sell it before it matures.
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