What Influences Treasury Bill Rates?

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.