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Brett Kelly
FIN610
5.16.2014
The United States Treasury Bills and Municipal Bonds
The United States Government is the single largest debt market in the world. These debts
are used to fund public projects and government initiatives. Through issuances from
Government Sponsored Enterprises such as Fannie Mae, The Federal Home Loan Bank,
and Ginnie Mae, various debt obligations are sold in primary markets. There are three
primary types of debt instruments the government frequents; Treasury Bills, Bonds, and
Notes. The sale of each is made via auction or direct purchase from TreasuryDirect.gov.
After the initial sale, investors are free to trade their purchases in secondary markets. As of
this writing, the total public debt according to the U.S. Treasury is roughly 12.5 trillion
dollars. There is also an additional 5 trillion in intragovernmental holdings. For so much
debt, the active purchasing participants can be broken down into 2 primary groups;
institutional and individual investors. In addition to Bills, Notes, and Bonds, the U.S.
Treasury also offers Treasury Inflation Protected Securities (TIPS) and Floating Rate Notes
(FRNs) with various maturities.
Treasury Bills are short-term securities with one year or less maturity that do not pay
interest. They currently make up a little over 12 percent of the United States’ marketable
debt portfolio. Brokers or financial institutions purchase these instruments in periodic
auctions. Bills are sold with 4, 13, 26, and 52-week maturities. They are sold at a discount
or at face value and the return realized at maturity is considered the interest. Supposed you
by a $100 Bill at a 1% discount, or $99. At maturity, this Bill will award you $100 and you
will receive a $1 profit from the exchange. Often times, the interest rate is far below 100
basis points. Currently, Treasury Bill rates range from 0.02 to 0.1% return on securities
ranging from 4 to 52 weeks. Treasury Bills are calculated using 360 day years with a
formula provided by the U.S. Treasury: P = F(1 – (d x t) / 360) where P equals the Bond
Price, F equals the face value, d equals the rate of discount, and t equals the number of
days until the security’s maturity. Varying maturities are auctioned at different times and in
different frequencies. 4-week bills are auctioned every week on Tuesday. 13 and 26-week
bills are auctioned every Monday. 52-week bills are auctioned every fourth Tuesday.
Scheduling plays a big role in the release of these debt issuances. The Treasury releases a
