Money Market
Price T-bills, commercial paper, CDs and repos, and put every quote on the same footing: discount, money-market, bond-equivalent and effective annual yields side by side.
Learning focus: a T-bill's quoted discount yield understates its return, because it divides the gain by face instead of the price paid and uses a 360-day year.
| Measure | Basis | Yield | Above discount yield |
|---|---|---|---|
| Discount yield | Gain ÷ face, 360-day year | 3.9000% | — |
| Money-market yield | Gain ÷ price, 360-day year | 3.9388% | 3.9 bp |
| Bond-equivalent yield | Gain ÷ price, 365-day year | 3.9935% | 9.4 bp |
| Effective annual yield | Compounded over 365 days | 4.0538% | 15.4 bp |
The discount rate is held fixed while the term changes. The longer the bill, the lower its price and the further the discount yield falls below the others. The bend at 182 days is where the bond-equivalent yield switches to the Treasury formula for bills longer than half a year.
T-bills and commercial paper are quoted as discount rates and CDs as add-on rates, so the quotes can't be compared directly. Converted, they can. All rows use ACT/360.