Are the 3 month t-bill rates documented by FRED here annualized? For example, the rate for January 1997 is 5.03%. Does that mean one would get a 5.03% return in 3 months, or is that an annualized rate?
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2 Answers
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Yes t-bill rates are annualized. T-bills are zero coupon bonds and all of the interest is therefore paid at maturity. They are discount instruments and you will receive face value at maturity which includes the interest. The interest is calculated using ACT/360 day count convention and FRED shows the yield on a discount basis.
The discount yield is calculated as follows:
discount yield (%)= (Face Value - Price)/Price * 360/ACT * 100%
Act = the Actual number of days until maturity
Since t-bills are auctioned on a weekly basis, the rate that you see will be the annualized yield of the current (most recently auctioned) t-bill based on the price on that day.
On the chart that you link to, that is a monthly series. It appears that they take the average of the calculation above for all the business days in the month.
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$\begingroup$ Too late for my homework, but thank you! At least now I know $\endgroup$ Jan 20, 2018 at 4:10
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Yes, all t-bill or other interest rates on the FRED website are annualized!!! The 3-months only refer to the maturity time.
