On what basis are government bills quoted?

Government bills, such as Treasury bills, are quoted on a discounted yield basis because they do not pay interest in the traditional sense. Instead, these securities are issued at a discount to their face value and mature at par value. The yield is derived from the difference between the purchase price (the discounted price) and the face value received at maturity. This means that the return to the investor is based on the yield, calculated as a percentage of the price paid for the bill, assuming that it is held to maturity.

This method of quoting highlights the yield rather than the price or face value, allowing investors to clearly understand the effective return they will receive on their investment relative to what they initially paid. It’s a key characteristic of how these short-term government instruments are priced and traded in the market.