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FRED Three-Month Treasury Bill Yields Use the Bank Discount Basis

Article Quant Q&A · Author: Nikola
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Summary

The document addresses how to interpret the three-month Treasury bill yield series obtained through quantmod from FRED. The response identifies the quoted rate as an annualized bank discount yield, calculated on a 360-day year and a discount basis, rather than a bond-equivalent yield. It points readers to FRED’s underlying data description as the source for the series convention.

The questioner suggests that the daily yield changes because Treasury bills trade in the secondary market: changing prices lead to changing discount yields. The replies do not develop or verify that explanation in detail, nor do they give the precise conversion formula or explain how the quoted rate relates to realized investment return. Users should therefore distinguish the stated quotation convention from other yield measures before comparing rates or using them in analysis. The discussion is narrowly focused on the series’ basis and does not evaluate the data source or its suitability for a particular model.

Key ideas

  • The described FRED three-month bill series reports bank discount yield.
  • The quoted rate is annualized using a 360-day year and uses a discount basis.
  • The discussion distinguishes this convention from a bond-equivalent yield but does not provide a conversion formula.
  • Daily price changes in secondary trading are proposed as an explanation for changing yields, but the replies do not elaborate on it.

Tags

Fixed incomeUS markets
Full text
# What yield on T-bills is presented in obtained data from quantmod?


# What yield on T-bills is presented in obtained data from quantmod?












When I try to find, for example 3 months T-bill rate, how that rate is calculated?

> getSymbols(Symbols = "DGS3MO", src = "FRED", auto.assign = FALSE) -> t3 tail(t3) ` DGS3MO ` 2017-06-28 1.02 2017-06-29 1.04 2017-06-30 1.03 2017-07-03 1.06 2017-07-04 NA 2017-07-05 1.05

```
      DGS3MO
```

How these yields are calculated? Is it bank discount yield, because that's how yield of T-bills is calculated by convention If I'm not wrong, or is it recalculated bond equivalent yield?

## Answer by Joel Alcedo (score 1)

https://quant.stackexchange.com/a/35029

The answer is buried in your question. If you look at the underlying data from FRED you'll see their method.

## Answer by Nikola (score 1)

https://quant.stackexchange.com/a/35030

- Annualized using a 360-day year or bank interest.

- On a discount basis

So it's on the bank discount yield. I have a problem understanding why the yield is changing daily? My answer is: since it is trading constantly on the secondary market, supply and demand determines price of the bill every day, so applying bank discount yield on that new prices we get new yields every day?

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.