Joel R. Anderson

18 May 2000 

Hon. Michael W. Sunner, Deputy Asst. Comm.
Department of the Treasury
Bureau of the Public Debt
Washington DC 20239-0001

Dear Commissioner Sunner:

Thank you for your gentle correction of 1Mar00 to my 12Jan00 reporting errors in interest rate computations. I was using an old, out-of-date formula, you supplied the current, correct formula.

From your website, this (quote):

Prices, Rates, and Yields

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Treasury bill auction results provide information about the range of accepted discount rates and their equivalent prices and investment rates. The discount rate is an annualized rate of return based on the par value of the bills. The investment rate, or equivalent coupon yield, is an annualized rate based on the purchase price of the bills and reflects the actual yield to maturity. Both rates are calculated on the actual number of days to maturity. The discount rate is calculated on a 360-day basis (twelve 30-day months). The investment rate or equivalent coupon yield is calculated on a 365-day basis (or on a 366-day basis during leap year).

Q1: I was surprised to discover that Treasury computed the Investment Rate on my 3-mo T-bill (CUSIP 912795EV9) on a 365-day basis in this a leap year with 366 days. Upon computing *all* the Investment Rates I could find easily, I discovered that Treasury (apparently) only computes a 366-day Investment Rate when the T-bill includes 29Feb between Issue and Maturity dates - this is NOT what it says on your website. See: TBIL_DAT.XLS

Joel Anderson, 18 May 2000, page 2  

In my view, all Treasury borrowing should be specified in Federal Reserve Reg. DD Truth-in-Savings APY_365-day, it would eliminate a lot of unnecessary computation.

I do not understand why some T-bill Discount Rates are only given to 2 decimal places. Or why corresponding Investment Rates are only reported to 2 decimal places when 3 decimal places can be as easily calculated.

Q2: Note and Bond auction results. See: TNOT_DAT.XLS. I can confirm the Investment Rate for Notes and Bonds for *full* years; 2, 5, 10, 30; with the exception of 10-yr Note CUSIP 9128275W8 for which I calculate an Investment Rate of 4.337 and for which Treasury published an Investment Rate of 4.338.

I can't confirm the Investment Rate for any Notes and Bonds that include months; 3-months, 6-months, 9- months. The 29-year, 6-month Bond, CUSIP 912810FH6, is a particular problem. The Treasury Interest Rate for this Bond is 3.875, the Treasury Yield is 4.138%. I calculate a Yield of 4.051 and an APY of 4.092. The Treasury Yield is *above* my calculated APY (Truth-in- Savings APY), which is highly unusual - an APR is never higher than an APY.

How does Treasury calculate the Yield on Notes and Bonds that include months in addition to years; that is, Bonds like CUSIP 912810FH6?

Very truly yours, 

Joel R. Anderson

e: TBIL_DAT.XLS

Recent Treasury Bill Auction Results (source data for TBIL_DAT.XLS)

TNOT_DAT.XLS

TNOT_DAT

Recent Treasury Note and Bond Auction Results (source data for TNOT_DAT.XLS and TNOT_DAT)