Understanding U.S. Government Securities Quotes

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  • Because the market for U.S. Government securities is both global and highly competitive, prices tend to be similar throughout the world.
  • Quotes for Treasury securities show the security's interest rate when it was sold, the maturity date, bid and asked prices, price change from the previous day, and the yield on the security.
  • Prices are quoted in 32nds of a dollar.

Each trading day, news wire services obtain data on bid and asked prices for all marketable Treasury bills, notes, and bonds. These data were reported as the U.S. Government securities quotes each day until October 1996. The market for these securities is decentralized, but because the secondary market in Treasury securities is highly competitive, prices for actively traded issues tend to be similar throughout the market, which is global. For some less-active issues, with no recent trades to establish the current bid or asked level, quotations represent price estimates.

Note and Bond Quotes
A typical quote has five headings for each note and bond:

ISSUE                   BID      ASK    CHANGE    YIELD 
6 1/2 8/15/05-N    105.08     12          +3            5.57

Figures under the "issue" heading identify the specific security by the interest rate established by the Treasury when the security was first sold (in this case, 6 1/2 percent) and the maturity date (Aug. 15, 2005). The "N" indicates that the issue is a note—an issue with an initial maturity of two to 10 years. (Treasury coupon securities with initial maturities in excess of 10 years are called bonds.) In the market, this note is referred to as "the 6 1/2s of August 2005."

The figures under the "bid" show the price a buyer is willing to pay for the issue, and "ask" is the price at which a seller is willing to sell the issue. Both sets of figures use a numerical shorthand to express the prices.

Prices Presented in 32nds
Note and bond prices are quoted in dollars and fractions of a dollar. By market convention, the normal fraction used for Treasury security prices is 1/32. In the report, the decimal point separates the full dollar portion of the price from the 32nds of a dollar, which are to the right of the decimal. Thus the bid quote of 105.08 means $105 plus 8/32 of a dollar, or $105.25, for each $100 face value of the note.

The number "12" under "ask" further abbreviates the presentation of the price sought by a seller. It shows only the 32nds of a dollar; the full dollar portion of the price carries over from the bid price. In the example above, it stands for 105—the whole dollar amount of the bid price—and 12/32, or $105.375 per $100 face value.

Ask prices are always higher than bid prices for notes and bonds, but the figure shown in the ask column of the quote sheet may be lower. This would indicate that the ask price has gone to the next higher whole dollar. If, in the example above, the ask were A1," the full price would be 106-1/32, that is, the next highest dollar amount above the bid price.

Following the ask price is the "change"—the difference between the current trading day's bid price and the bid price of the preceding trading day. It, too, is a shorthand reference to 32nds of a point. In the example, it denotes an increase of 3/32, or 9 cents per $100 face value. Often, both the bid and ask quotes change by the same amount from the previous day's levels; that is, the "spread" between bid and ask is usually maintained.

Some very active issues may be quoted in 64ths of a point. To reflect this in the quote, a plus sign (+) would follow the price. A quote of 104.07+ means 104 and 7/32 plus 1/64, or 104 and 15/64.

Determining Yield on Notes and Bonds
"Yield," 5.57 percent in the example, is the annualized percentage return that the purchaser will receive if the note is purchased on the day of the quotation at the ask price and held until maturity. It is based on a formula using the ask price, time to maturity, and the coupon rate.

Some Treasury notes were issued with the provision that they could be called in by the Treasury before the specified maturity date. These notes have two years listed in the issue description of the quotes, indicating the earliest call date and the maturity date. The treatment of yield for these issues differs from the non-callable issues. If the callable issue is quoted above par (over $100 for each $100 of face value), the call date—the first date shown in the description—is used to calculate the yield, rather than the maturity date. If, however, the callable issue is quoted below par (less than $100 for each $100 of face value), the final maturity date is used to determine the yield.

Treasury Bills Quoted on Discount Basis
Bills, which mature in a year or less, are quoted differently from notes and bonds, since bills do not pay an established rate of interest. An investor's return on a bill is the difference between the purchase and subsequent sale price or, when held to maturity, the face value paid by the Treasury. Consequently, bills are quoted at a discount from face value, with the discount expressed as an annual rate based on a 360-day year.

As with notes and bonds, a numerical shorthand is used to present the information on bills quotes. For example:

ISSUE      BID      ASK      CHANGE     YIELD
12/3/98     5.08     5.06          -.03           5.26

The first numbers refer to the bill's maturity date, December 3, 1998. For this example, assume the current date is 169 days before maturity.

The bid, 5.08 percent, is the interest rate that the dealer proposes as a buyer of this bill. He is offering to pay $9,761.52 for a Treasury bill with a face value of $10,000 maturing in 169 days. When the bill is held to maturity, the dealer would receive $10,000, or $238.48 more than the purchase price. That $238.48 represents a 5.08 percent annualized return on a "discount basis," the return based on the actual amount paid.

The ask quotation, 5.06 percent, is the interest rate that the dealer proposes as a seller of this bill. The seller always seeks a sale with a lower return (thus a higher price) than the buyer wishes to pay. Therefore, unlike the quotes on notes and bonds, bid quotes on bills are always higher than the asked.

In the example, the seller would receive $9,762.46 for a $10,000 Treasury bill if the 5.06 percent (the ask quote) were accepted.

Determining Prices on Bills
To determine bid and ask dollar prices for each $10,000 of face value, multiply the bid or ask return (excluding decimals) by the number of days to maturity and divide by 360 days. Then, subtract the result from the $10,000 face value. In the example,the bid price per $10,000 face value would be

(508 x 169)
$10,000 - ----------- = $9,761.52

The ask dollar price would use the same formula, but replace the 508 with 506. This produces a price of $9,762.46.

The "change" of -.03 in the quotation is the difference between the present day's listed bid and the preceding day's bid, in hundredths of a percentage point, called "basis points." Thus, the change in this example means the discount rate of return on the previous day's bid was 5.11 percent. Furthermore, since a decrease in the return indicates an increase in price, this quote shows that the market for this issue improved from the previous day.

The "yield" is based on the ask rate and is the annualized rate of return if held to maturity. The yield is calculated on a coupon equivalent basis, which takes into account that the investor's true return is based on a purchase amount that is less than the $10,000 face amount. In the example, the investor, receiving $237.54 more at maturity than the price paid ($10,000 minus $9762.46), obtains a 5.26 percent annualized bond equivalent yield on the bill.

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