After US Government debt is sold at Treasury auctions, those securities trade exclusively in the over-the-counter (OTC) markets. An OTC trade is one that does not take place on a physical exchange like the New York Stock Exchange.

Similar to how corporate bonds are quoted, US Government debt is quoted in percentage of par format. However, instead of eighths, US Government securities are quoted in 32nds. Government bonds are quoted in 32nds because the market is larger and has more price changes. When a bond can be quoted in 32nds, there are more possible prices the bond can trade at.

US Government debt quotes will look different, but the process of converting them to a price is the same as with corporate bonds.

An investor finds three separate quotes for the same bond:

95-8

95:8

95.8

US Government quotes can be presented with a dash, colon or period. Although you don’t see a fraction above, the quote translates to a bond price of 95 and $\frac{8}{32}$ percent of par. The number on the right side of the quote (after the dash, colon, or period) is always assumed to be in 32nds. Unlike corporate bonds, there is no reduction of the fraction.

If you utilize the same “fraction-boot-scoot” method we used with corporate bonds, you can convert the quote to a price. The only difference is how the fraction is presented. Let’s look at a few examples.

A US Government bond is quoted at 95-8. What is its price?

Step 1: calculate the fraction

$\frac{8}{32}$ = 0.25

Step 2: boot the decimal back to the big number

95 + 0.25 = 95.25

Step 3: scoot the decimal once over to the right

$952.50

Think you can do it on your own? Give it a try!

A US Government bond is quoted at 103:20. What is its price?

(spoiler)

Step 1: calculate the fraction

$\frac{20}{32}$ = 0.625

Step 2: boot the decimal back to the big number

103 + 0.625 = 103.625

Step 3: scoot the decimal once over to the right

$1,036.25

As you can see, the process is very similar to the way we approach corporate bond quotes. Yes, the quotes look and feel different, but the method is the same. Both corporate and US Government securities are quoted in percentage of par format.

Treasury bill quotes are an exception to this process. Due to their short-term zero coupon nature, they are quoted in “discount yield” form. Treasury bill quotes are provided in yield form, reflective of the rate of return the bill provides.

For example, a Treasury bill quote might look like 3.2%. Instead of providing an actual price, the investor knows that they will achieve an overall return (yield) of 3.2% based on the discount of the bond. Remember, Treasury bills are bought at discounts, mature at par, and do not have a coupon.

Key points

US Government debt market

Treasury auctions new issues
Traded in OTC markets after issuance

US Government debt quotes

Percentage of par quotes (generally)
Quoted in 32nds using a:
- Dash
- Colon
- Period

Treasury bill quotes

Discount yield form