Treasury Bill Price is dependent on the Treasury Bill Market movements and it responds promptly to economic changes. Treasury Bill Prices are determined by Treasury Bill auctions and secondary markets.
Treasury Bills are securities issued by the U.S. Government and their trading is done in the U.S. Treasury Market. For constructing various Mortgage Indexes (ARMs) which also includes Treasury Bill Indexes, Treasury Bill yields (reports) are implemented. Usually, Treasury Bills are issued by the U.S. Government with maturity periods of 1 month, 3 months, and 6 months.
The trading of Treasury Bills is done both in the primary markets and secondary markets. Firstly, the auction of Treasury Bills is done by the U.S. Government directly. This is termed as the primary market for Treasury Bills. In this market, the Treasury Bills are issued first. After that, the subsequent trading of Treasury Bills amongst the investors is done in the secondary market. These markets work as determinants for every Treasury Bill Price.
Treasury Bill quotes are offered in two forms:
Annualized discount rate percentage relative to the par value and a 360-day year and it is called as Discount Yield
A Bond Equivalent Yield, which is relative to the price and a 365-day year.
The Discount Yield is an annualized rate of return based on the face value of the bills and is calculated on a 360-day basis. Discount Yield is also known as Discount Rate.
The Bond Equivalent Yield is calculated on a 365-day basis and it is an annualized rate based on the purchase price of the bills and indicates the actual yield to maturity. Bond Equivalent Yield is also known as Investment Rate, Investment Yield, or Coupon-Equivalent Yield. (Source: mortgage-x.com)
The Treasury Bill Index has both monthly and weekly values. The past month's weekly Treasury Bill Price averages represent the monthly values.
Conversion Formulas (for bills of not more than 6 months to maturity)
Convert Price (P) to Discount Rate (d): d = ((100-P)/100)*(360/r)
Convert Price (P) to Coupon Equivalent Yield (i): i=((100-P)/P)*(y/r)
Convert Discount Rate (d) to Price (P): P=100*(1-d*r/360)
Convert Discount Rate (d) to Coupon Equivalent Yield (i): i=y/(360/d-r)
Convert Coupon Equivalent Yield (i) to Discount Rate (d): d=360/(y/i+r)
Where
P = Price
d = Discount Rate
r = Days to Maturity
y = Days in Year
i = Bond Equivalent Yield