What does the Treasury Bill Rate measure?

A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks).

T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, the appreciation of the bond provides the return to the holder.

For example, let's say you buy a 13-week T-bill priced at $9,800. Essentially, the U.S. government (and its nearly bulletproof credit rating) writes you an IOU for $10,000 that it agrees to pay back in three months. You will not receive regular payments as you would with a coupon bond, for example. Instead, the appreciation - and, therefore, the value to you - comes from the difference between the discounted value you originally paid and the amount you receive back ($10,000). In this case, the T-bill pays a 2.04% interest rate ($200/$9,800 = 2.04%) over a three-month period.

Note: In a brodaer sense the Treasry securities include all mutirites of Govt. bonds. Investors and those following the movement of interest rates look at the movement of Treasury yields as an indicator of things to come. Their rates are considered an important benchmark: Because Treasury securities are backed by the full faith and credit of the U.S. Treasury, they represent the rate at which investment is considered risk-free.

Since investors in riskier investments command a higher return as compensation, the yields on many bonds and money market instruments are priced at a spread over the corresponding risk-free Treasury rate. Yields on money markets and certificates of deposit are often priced relative to yields on Treasuries of a similar length. Adjustable rate mortgages can be indexed to the one-year Treasury. Fixed mortgage rates are closely linked to movements in long-term Treasury yields, as mortgages are often packaged together and sold as mortgage-backed bonds. Yields on short-term Treasuries can behave differently from yields on longer-term Treasuries.

I believe it is a grossly outdated benchmark that goes back to the day of the dollar being backed by tangible assets. Treasuries were considered risk free because they were backed by the government, which was supposed to be the ultimate in security. Of course that is all hogwash now, but they still have their rates set by the government, so the benchmark remains. Treasuries today are the surest way to the poor house as your investment is eaten alive by inflation. You in effect, trade fair growth for a false sense of security. I hope this answers your question, and please remember it is my opinion, not necessairly a universal truth.