How Treasury Bills Work

How to Buy a Treasury Bill

Investors buying treasury bills on auction day, in the days when paper bills were still issued.
Investors buying treasury bills on auction day, in the days when paper bills were still issued.
Photo by Allan Tannenbaum/Time Life Pictures/Getty Images

You can purchase treasury bills at a bank, through a dealer or broker, or online from a website like TreasuryDirect. The bills are issued through an auction bidding process, which occurs weekly. Treasury bills are now issued only in electronic form, though they used to be paper bills.

Before you buy a bill, you have to decide whether to make a competitive or non-competitive bid. Non-competitive bidding is the simplest way to purchase a treasury bill and is what most people do who are not experts in security trading. When you make a non-competitive bid, you agree to accept whatever interest rate is decided at the auction. You are guaranteed that your bid will be accepted and that you will get the full amount of your bill paid back to you. But you won't know exactly what interest rate you will receive until the auction closes.

In competitive bidding, on the other hand, you specify the return you want to receive. This kind of bidding is usually done by corporations and people who really understand the supply and demand of the securities market. It is more complicated because you don't know whether your bid will be accepted. If the rate of interest you specify is less than or equal to the rate set by the auction, your bid will be accepted, and you'll receive the uniform rate. This rate is called the highest accepted yield, and is what all accepted bidders receive, even if they bid for less. For example, if all bids with discount rates between 1.15 percent and 1.25 percent are accepted, you will receive 1.25 percent even if you bid lower. If your bid is higher than the rate set by the auction, however, it will be rejected.

It is through the process of competitive bidding that the discount rates for an auction are decided. A set discount rate is the average from all the competitive bids. It is also the rate that the non-competitive bidder receives.

The auction process begins as soon as the U.S. Treasury announces the treasury bill auction. At this point, the Treasury starts accepting bids, which can be submitted until the auction closing time. The closing time is slightly different for competitive and non-competitive bidders. In most auctions, the non-competitive bids close at 12:00 p.m. (noon) Eastern Time on closing day, and competitive bids close at 1:00 p.m.

In a single auction, an investor can buy a maximum of $5 million in bills by noncompetitive bidding. The maximum one investor can be awarded by competitive bidding is 35 percent of the total amount given out.

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More Great Links


  • Beginner Money Investing. "Competitive Bids." (5/12/08)
  • EH.Net Encyclopedia. "The United States Public Debt, 1861 to 1975." 3/16/08. (5/11/08)
  • Encyclopedia Britannica. "Treasury bill." 2008. (5/11/08)
  • Investopedia. 2008. (5/10/08)
  • "Treasury Bill History." 2008. (5/11/08)
  • Peters, Jeremy W. "Investors rush to buy Treasury bills." International Herald Tribune. 8/21/07 (5/11/08)
  • PNB Gilts Ltd. 2002. (5/10/08)
  • Texas State Securities Board. "What Is a Security." 3/13/08. (5/11/08)
  • TreasuryDirect. 3/28/08. (5/10/08)
  • U.S. Treasury. "Daily Treasury Bill Rates." 2007. (5/11/08)