Typically,the ask price of a security shouldbe higher than the bid price. This can be attributed to the expected behavior thatan investorwill not sell a security (asking price) for lower than the price they are willing to pay for it (bidding price).
But sometimes the way the bid/ask price is quoted with U.S. Treasury Bills (T-Bills) gives the appearance that the ask price is lower than the bid price. Here's a look at why the pricing is confusing and how you can understand the quotes.
Key Takeaways
- Generally, the asking price, or the price at which an investor is willing to sell a security, should be higher than the bidding price or the price at which they are willing to buy the security.
- That's true of Treasury Bills (T-Bills) as well, but depending on how the prices are quoted, it can give the false impression that the ask price is lower than the bid price.
- This confusion emerges from the fact that T-Bills are discount bonds and sometimes the quotes listed are actually the yield on the bond, and not the price.
- Doing the math and converting the bid and ask discount yields into the dollar amounts of the prices will reveal the actual prices—typically, a higher ask and lower bid.
How Bid/Ask Is Quoted for T-Bills
Since there is more than one method of quoting the bid and ask prices of T-bills, the quoted ask price may simply be perceived as being lower than the bid. However, it is possible to convert the prices quoted so that you can see an accurate comparison of the bid and ask prices.
For example, one common quote that you may see for a 365-day T-bill is July 12th, bid 2.35%, ask 2.25%. At first glance, the bid seems to be higher than the ask, but upon further inspection, you may noticethat the ask is actually higher. The reason for this is that a T-bill is a discount bond, and these percentages are the quoted yields, not the actual prices.
A Treasury Bill, or a T-Bill, is a short-term U.S. government debt obligation backed by the Treasury Department; it typically has a maturity of a year or less.
How to Understand Pricing
If we convert the bid and ask discount yields into the dollar amounts of the prices, we get a bid of $97.65 and an ask of $97.75. The bid is thus actually lower than the ask. Sometimes the quotes on T-bills show the actual prices, in which case you don't have to convert or calculate anything. The same T-bill above, therefore, may be quoted with a bid of 97.65 and an ask of 97.75.
So, as the dollar amount of the bid should be lower than the ask, the bid's quoted yield percentage should be higher than the ask's quoted yield percentage. The two different kinds of quotes are just different ways of saying the same thing.
FAQs
Key Takeaways
What is the difference between the bid and the ask on Treasury bills? ›
Buying Treasury bills on secondary markets
You'll have to deal with the bid-ask spread, which is the difference between the highest price a buyer is willing to pay (the bid) and the lowest a seller is willing to accept (the ask).
Is the bid price higher than the offer price? ›
The bid price will always be lower than the offer price. The bid represents the demand side, and the bid price highlights the price set by the buyer. On the contrary, the offer represents the supply side. The difference in bid-offer price (spread) is narrow for liquid securities.
Do bid prices exceed ask prices? ›
The bid price is the highest price that a buyer is willing to pay for a particular security or asset. It represents the demand side of the market and is typically lower than the ask price.
Which is bigger the bid price or the ask price? ›
The term "bid" refers to the highest price a buyer will pay to buy a specified number of shares of a stock at any given time. The term "ask" refers to the lowest price at which a seller will sell the stock. The bid price will almost always be lower than the ask or “offer,” price.
Is it better to buy the ask or bid? ›
The Bid is the price that a buyer is willing to pay for the stock. This price is almost always lower than the Ask. The Ask is the price the seller is willing to sell the stock for. In a perfect world, we would be able to buy the stock at the Bid price, but that's rarely possible.
What is the bid price of a treasury bill? ›
The answer is: B. the price at which the dealer in Treasury bills is willing to buy the bill. The bid price is the price dealers can buy it for. The ask is what sellers are willing to sell it for.
Why is the asked price higher than the bid price? ›
Typically, the ask price of a security should be higher than the bid price. This can be attributed to the expected behavior that an investor will not sell a security (asking price) for lower than the price they are willing to pay for it (bidding price).
Why is the ask price higher than the bid price it represents? ›
In essence, bid represents the demand while ask represents the supply of the security. For example, if the current stock quotation includes a bid of $13 and an ask of $13.20, an investor looking to purchase the stock would pay $13.20. An investor looking to sell the stock would sell it at $13.
Do I sell at bid or offer price? ›
A 'Bid' is the maximum price that a buyer is willing to pay to purchase shares in a stock. The 'Offer' price, sometimes called the 'Ask' price, is the price at which the seller is offering to sell their shares. During trading hours, when the bid price 'meets' the offer price, a trade is executed.
An individual looking to sell will receive the bid price while one looking to buy will pay the ask price.
What happens when you bid over asking price? ›
For example, offering more than the asking price may result in winning a bidding war more quickly. But on the flip side, it likely also means paying more for a home than its actual value.
What are best ask and best bid prices? ›
The highest price that someone is willing to buy a crypto at is known as the “best bid“. This best bid price guarantees the highest possible price for any seller at that particular time. The lowest possible price that someone is willing to sell at is called the “best ask” or “best offer”.
What if bid price is higher than ask price? ›
That's actually normal for the stock market. You will see this pretty much all of the time. If the 'bid' level was equal to or higher than the 'ask' level, then shares of stock would sell until either there were no more offers to buy at that price, or no more offers to sell at that price.
Is the bid price always higher than the offer price? ›
Bid and Ask Prices
The dealer's bid price is always lower than his/her ask or offer price so that the dealer can be compensated for “making the market,” i.e., facilitating the trading among investors. The difference between the bid and ask prices is referred to as the bid–ask spread.
How to calculate bid price and ask price? ›
The bid-ask spread equals the lowest asking price set by a seller minus the highest bid price offered by an interested buyer. Electronic exchanges such as the NYSE or Nasdaq are responsible for matching bid and sale orders in real-time, i.e. facilitating transactions between the two parties, buyers and sellers.
Why is the bid and ask so different? ›
The bid price represents the highest price a buyer is willing to pay for the security, while the ask price represents the lowest price a seller is willing to accept. In the stock market, a buyer will pay the ask price and a seller will receive the bid price because that's where supply meets demand.
How do you know when to bid or ask price? ›
In essence, bid represents the demand while ask represents the supply of the security. For example, if the current stock quotation includes a bid of $13 and an ask of $13.20, an investor looking to purchase the stock would pay $13.20. An investor looking to sell the stock would sell it at $13.
Why is bid yield higher than ask yield? ›
Bid yields are always higher than ask yields, because if the buyer were willing to take a yield that was equal to or less than the ask yield, then the seller would sell the bond to the buyer at that corresponding price.
What is a Treasury bid? ›
Treasury auctions are designed to minimize the cost of financing the national debt by promoting broad, competitive bidding and liquid secondary market trading. A review of the auction process—from the announcement of a new issue to the delivery of securities—reveals how these objectives have been met.
