Treasury markets look crossed
Quantitative Finance
Level
2
A broker calls you up with a market in the 80 day to maturity Treasury bill. His market is 1.02 bid at 1.01. What trade do you want to do?
Buy 1.02 and sell 1.01
Need more information about interest rates
Sell 1.02 and buy 1.01
Buy 1.01
Buy 1.02
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1 solution
The treasury bill is quoted in terms of yield. Recall that the yield is inversely proportional to the price. Hence the bid will be higher than the ask, which is why the markets appear to be in cross.
We need to know what the prevailing interest rate is, before we can determine what the yield of the bill is, which would then inform our trading decision.