## Tuesday, 30 June 2015

### US T Bills - an unremittingly fair price

US Tbills are key participants in the manufacture of the risk free yield curve.  That is to say, whatever the yield to maturity of a T-bill priced at $P$ just now, at the tenor $t$, that yield to maturity is also the discount rate to value the future cash flow which constitutes the payment of face value $F$ at time horizon $t$.

So when we come to model the present value of the (singular) cash flow of $F$ at $t$, we realise that the present value of this is simply the current market price of the instrument, $P$.

There may be quibbles.  The yield curve in practice isn't usually a treasury yield curve, but a money markets, futures, swap based yield curve.  Or perhaps one which is blended or fitted.