What factors cause US Treasury Bill yield to fluctuate?

Jun 2, 2023
The Conduit Team
There are several factors that influence the day-to-day yield of US Treasury bills, despite always paying out the face value at maturity.

US T-bills are considered the global standard for safe investments. For an overview of how they work, check out our comprehensive guide.

Part of that guide shows the hypothetical day-to-day fluctuations in price of a T-bill, as it approaches its maturity date.

But what causes these price fluctuations? There are factors that can influence T-bill yield::

Monetary Policy

Changes in monetary policy set by the Federal Reserve can directly impact T-bill yields. These changes generally refer to either interest rate changes and debt ceiling legislation.

Interest Rate Changes

When the Federal Reserve raises interest rates, T-bill yields tend to increase as well. Conversely, when the Federal Reserve cuts rates, T-bill yields tend to decrease. 

Debt Ceiling Negotiations

The United States government debt ceiling represents the maximum amount of debt the government can accumulate to finance its operations and obligations, such as paying back T-bills as they reach maturity. The debt ceiling is set by Congress and must be increased or suspended to allow the government to continue borrowing when the limit is reached.

Debates about raising the debt ceiling tend to be exaggerated before election years, where the two main political parties tend to use the threat of a US default as leverage to advance their political agendas and generate concessions from their opponents. While disagreements about the fiscal responsibility of the US government are to be expected, it is important to note that the US has never reached the point of default where the Treasury was incapable of paying US debt obligations, with the only exception being when the Treasury was burnt down  during the War of 1812.

During times when the government is legislating a raise of the debt ceiling, T-bills that reach maturity close to the required timing see their yield spike. This is due to the potential for the government to default on those T-bills, in the event an agreement on the debt ceiling is not reached.

Supply and Demand Dynamics

The supply and demand for T-bills in the market can influence their yields. If there is high demand for T-bills, the prices rise, and yields decrease. Conversely, if demand is low, prices fall, and yields increase

A popular T-Bill trading strategy involves regularly purchasing the most recently issued set of T-bills of a particular maturity – the “on-the-run” issuance.

Because there are fewer on-the-run T-bills, they are the most actively demanded treasury bonds. This generally means that they are slightly higher priced and lower yield than off-the-run bills. Learn more about on-the-run treasury bills and roll-down strategies in our guide.

Inflation Expectations

Inflation expectations play a significant role in determining T-bill yields. If investors anticipate higher inflation in the future, they may demand higher yields to compensate for the eroding purchasing power of the fixed interest payments on T-bills. Consequently, if inflation expectations rise, T-bill yields tend to increase as well.

US Economic Outlook

T-bill yields are influenced by the overall US  economic outlook. If the economy is performing well, with strong growth and low unemployment, T-bill yields may rise as investors seek higher returns from riskier assets. On the other hand, during economic downturns or periods of uncertainty, investors may look to the safety of T-bills, driving down yields.

Geopolitical Factors

Geopolitical events or global economic conditions can impact T-bill yields. For example, if there is political instability, economic crises, or heightened market volatility in other countries, investors may seek the safety of U.S. Treasury bills, leading to increased demand and lower yields.


It is important to restate that while these factors can cause the yield of T-bills to fluctuate day-to-day,  T-bills always pay the face value at the maturity date.