Factors affecting the interest rate of Treasury bills include the demand for risk-free fixed-income securities, the supply of T-bills, economic conditions, monetary policy and inflation, according to the Federal Reserve Bank of San Francisco. The prices and yields of new T-bills are determined at weekly auctions.
Demand for T-bills typically goes up when investors perceive greater risk in other financial markets and flee for the safety of T-bills, which raises T-bill prices but lowers their yield rates, states the Federal Reserve Bank of San Francisco. Federal budget surpluses affect T-bill rates by reducing the supply of some Treasury securities, thereby increasing T-bill prices and lowering yields.
T-bill yield rates often rise during good economic times and fall during recessions. Monetary policy by the Federal Reserve affects T-bill yield rates by influencing the interest rates for similar relatively risk-free investments. T-bill rates typically rise and fall with the inflation rate. T-bills do not pay an interest per se but are sold at less than face value and pay the full amount upon maturity. They can be bought from a bank, broker or directly from the U.S. Department of the Treasury through its online site, TreasuryDirect.gov. T-bills are an important financial instrument and form part of the investment portfolios of individuals, financial institutions and governments.