T-bill pricing confuses people because you pay less than face value and get the full amount at maturity — the difference is your return. Here is exactly how T-bill pricing and yields work.
Discount Pricing
A T-bill never pays a stated coupon. You buy at a discount to face value; at maturity you receive face value. The discount IS the interest.
Yield Calculation
Example: a 364-day bill at ₦100,000 face value bought for ₦80,000 earns ₦20,000 — about a 25% annualised return before tax. Shorter bills quote yields annualised the same way.
What Moves the Price
- Interest rates: higher rates → lower bill prices (higher yields).
- Demand: strong auction demand pushes prices up, yields down.
- Tenor: longer bills generally yield more.
Secondary Market
You can sell a T-bill before maturity; its price moves with rates, so you might gain or lose on the principal.
FAQ
Why do T-bills not pay coupons?
Because all due interest is embedded in the discount between purchase and face value.
What is a 'bid' at auction?
The yield/price you request; non-competitive bids take the market rate.
Related: T-Bill Cost and T-Bill Rates.