3-Month Treasury Bill

A 3-month Treasury Bill is a US Government security with a maturity of three months. It is one of the shorter-term Treasury bills and, as such, offers a higher yield than longer-term Treasuries. Treasury bills (T-bills) are a risk-free way to earn interest on your cash over a short period of time and can be an effective diversification tool. Yields on 3-month Treasuries tend to react to monetary policy decisions made by the Federal Reserve. When the Fed raises its target Fed funds rate, T-bill rates rise along with it. The opposite is true when the Fed lowers its target rate. As a result, the yield curve may invert, which is characterized by a spread between longer-term Treasuries and T-bills.

What Are T-Bills?

Treasury bills (T-bills) are low-risk, short-term investments that are backed by the United States government. They are also highly liquid and have a relatively low minimum investment amount, making them accessible to individual investors. T-bills are also exempt from state and local income taxes, although they are subject to federal income taxes.

T-bills are sold at auction and have a one-year or less maturity date. They do not pay interest before their maturity date and are typically sold at a discount from their face value. There are a number of different types of T-bills available, with maturities of four weeks, eight weeks, 13 weeks, 26 weeks, and 52 weeks. The 3-month, 6-month, and 12-month T-bills are referred to as “on-the-run” bills because they are the most liquid.

Investors can choose between purchasing T-bills at a non-competitive bid price or competing with other investors in the competitive bidding process. The competitive bidding is done through an auction process, and the final pricing will be determined at the end of the auction. A major investor’s mood can influence the bidding process, which can cause prices to fluctuate.

Investing in T-bills is not without risk, and they do not provide a high return on investment. In addition, T-bills are subject to inflation. If inflation is too high, it can reduce the value of the T-bills and make them unattractive to investors.

T-bills are popular for individuals looking for a low-risk investment with a predictable return. However, no single investment is right for everyone, and it’s important to consider your unique situation before investing in any security. If you’re interested in learning more about how T-bills can fit into your financial plan, schedule a discovery call with one of our financial advisors today.

How Do 3-Month Treasury Bills Work?

The 3-month Treasury Bill rate is an important part of the yield curve, representing short-term investor sentiments. As such, it can be used to forecast future changes in the federal funds rate. In addition, it is an important indicator of inflation. For example, a sharp drop in the 3-month Treasury Bill yield could indicate a flight to safety from volatile stock markets. In general, the yield on a Treasury bill is lower than other debt securities and brokered certificates of deposit.

The 3 Month Treasury Bill rate is based on the closing market bid quotations on the most recently auctioned Treasury bills in the over-the-counter market as obtained by the Federal Reserve Bank of New York at approximately 3:30 PM each business day. The Bank Discount rate and Coupon Equivalent are yields based on the par value, discount amount, and a 360-day year. The CRSP Treasury Series contains 1.7 million end-of-day price observations for T-bills and notes with varying maturity horizons. The data is available in various formats, including daily, weekly, monthly, and annual averages. This data can be used to construct the T-bill yield curve, which is an essential tool for assessing macroeconomic trends and inflation pressures.