How Does the T-Bill Auction Work?

by Cynthia Myers

Treasury bils, commonly known as T-bills, offer an alternative to stocks and bonds for investors. Sold by the United States Treasury department, T-bills have a maturity of one year or less. You buy the T-bills for less that its face value and when it matures you receive the face value. Unlike stock market investments, treasury bills offer a guaranteed return. The discount rate and the time to maturity vary with each bill. The Treasury Department sells T-bills at auction each week.


The Treasury Department holds auctions for T-bills each week. They auction four-week, 13- week and 26-week T-bills weekly. You can purchase 52-week T-bills once a month at auction. Look for announcements of upcoming auctions in your local newspaper or on financial websites. Announcements are usually published on Mondays for auctions that take place on Tuesday. The auction announcement will tell you the types and length of maturity for the bills being auctioned, and the value of the bills at maturity.


Both individuals and financial institutions may bid on T-bills at Treasury auctions. You can bid through a broker, or you can open an individual account through Treasure Direct. You can open the account by completing an application online. There's no charge to open the account. You must supply your Social Security or taxpayer ID number and your bank account information. When you're ready to bid, you'll access your account and indicate the type and amount of security you wish to purchase. The Treasury Department will withdraw money to pay for your purchase from your bank account and deposit your securities in your Treasury Direct account. You can access information about your purchases 24 hours a day in your account.


In a T-bill auction, the Treasury department accepts both competitive and non-competitive bidding. In competitive bidding you agree to accept the discount rate established by the highest bidder at the auction. You're guaranteed a winning bid and the T-bills you want will be yours. With a competitive bid, you bid a discount rate you're willing to pay and your bid goes in with all the other bids. At the close of the auction, the Treasury accepts the highest bid, the non-competitive bid and the other bids in order from highest to lowest. When no more securities are available for purchase, the auction closes. You're not guaranteed a win with competitive bidding and you can purchase no more than 35 percent of the total securities offered in the auction through competitive bidding.

Other Considerations

Since Treasury bills are guaranteed by the U.S. government, they're classified as very safe investments. They don't earn interest. Instead, you pay less than the face value for the bill and earn the full face value when the bill matures. The face value of Treasury bills starts at $1,000, so plan accordingly if you decide to participate in a T-bill auction.

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