Understanding Treasury Bill Auctions: Participation and Process Explained

What Is a Bill Auction?

A bill auction—specifically, a Treasury bill auction—is a public event by the U.S. Treasury for selling Treasury bills (T-bills), which have maturities from one month to a year.

Bill auctions consist of competitive bidders, who aren’t guaranteed T-bills but set their discount rate, and noncompetitive bidders, who are guaranteed securities but have to accept the rate that competitive bids establish.

The bill auctions, which are the official manner in which all U.S. Treasury bills are issued, take place weekly and help fund the national debt.

As of October 2025, 25 authorized primary dealers were required to participate and bid directly in the auction. It is also open to individual and institutional investors, each with differing strategies.

How Treasury Bill Auctions Operate

The weekly bill auction is actually an electronic Dutch auction. In this sort of proceeding, investors place a bid for the amount of the offering they are willing to buy in terms of quantity and price. The best bid wins, of course, but the offering’s price is set after all the bids are taken in and sorted, as opposed to it rising sequentially as bidders consecutively counter each other.

To kick-start the process, an announcement is released several days before the auction is to occur. The announcement includes information such as the auction date, issue date, amount of securities that will be sold, bidding close times, participation eligibility, etc. Bids are accepted up to 30 days in advance.

Once it begins, the bill auction accepts competitive bids to determine the discount rate to be paid on each issue. A group of securities dealers (banks and brokerages), known as primary dealers, are authorized and obligated to submit competitive bids on a pro-rata share of every Treasury bill auction. The winning bid on each issue will determine the interest rate that is paid on that issue. Once an issue is purchased, the dealers are allowed to hold, sell, or trade the bills. The demand for T-bills at auction is determined by market and economic conditions.

Key Participants in Treasury Bill Auctions

Participants in any Treasury auction consist of retail investors and institutional investors who submit bids categorized as either competitive or noncompetitive tenders. Noncompetitive tenders are submitted by smaller investors. In effect, these investors are bidding a bit blind: While they are guaranteed to receive bills, they won’t know the exact final price or what discount rate they will receive until the auction closes. An investor who submits a noncompetitive bid agrees to accept the final discount rate, which is determined by the competitive side of the auction.

Competitive tenders are submitted by bigger investors, such as institutional investors. Each bidder is limited to 35% of the amount of the offering per bill auction. Each bid submitted specifies the lowest rate or discount margin that the investor is willing to accept for the debt securities. The bids with the lowest discount rate will be accepted first. The lowest discount rate that meets the supply of debt being sold serves as the “winning” yield or the highest accepted yield, after all noncompetitive bids have been subtracted from the total amount of securities offered.

Unlike the noncompetitive bidders, competitive bidders are not guaranteed to receive any T-bills—as approval of their bid depends on the discount yield that they offered to accept. If their offered price is too low, they may end up getting locked out of the offering. All investors, competitive and noncompetitive, who bid at or above the level of the winning yield receive securities with this discount rate.

Example of a Treasury Bill Auction Process

For example, suppose the Treasury seeks to raise $9 million in one-year T-bills with a 5% discount rate. (The minimum amount you can buy a bill for is $100, although the most commonly sold bills have a par between $1,000 and $10,000.) Let’s assume the competitive bids submitted are as follows:

$1 million at 4.79%

$2.5 million at 4.85%

$2 million at 4.96%

$1.5 million at 5%

$3 million at 5.07%

$1 million at 5.1%

$5 million at 5.5%

The bids with the lowest discount rates will be accepted first since the government will prefer to pay lower yields to investors. In this case, since the Treasury is looking to raise $9 million, it will accept the bids with the lowest rates up to 5.07%. At this mark of 5.07%, only $2 million of the $3 million bid will be approved. All bids below the 5.07% rate will be accepted, and bids above will be rejected. In effect, this auction is cleared at 5.07%, and all successful competitive and noncompetitive bidders receive the 5.07% discount rate.

On issue day, the Treasury delivers T-bills to noncompetitive bidders who made their submissions in a particular bill auction. In exchange, the Treasury charges the accounts of those bidders for payment of the securities. The purchase price of the T-bill is expressed as a price per hundred dollars.

The Bottom Line

Treasury bill auctions are conducted weekly by the U.S. Treasury to distribute government debt obligations, with maturities ranging from one month to one year.

The auctions use a Dutch auction process, allowing competitive and noncompetitive bids. Noncompetitive bidders are guaranteed T-bills but at a rate determined by competitive bids, while competitive bidders risk rejection if their bids are not favorable. The “winning” yield is the lowest discount rate that meets the debt supply being sold.

Primary dealers must submit bids in every auction, whereas individual and institutional investors can participate with differing strategies.

Treasury bill auctions serve as a crucial tool in financing the national debt and managing interest costs.

Correction—April 6, 2023: This article has been updated to correct the example of which bids would be accepted and rejected by the Treasury.