when long term treasury yields are below short term ones the correlation is characterized as an inverted yield curve and is often seen as a precursor to an economic downturn 
yield on treasury billswhile treasury notes and bonds offer coupon payments to bondholders the t bill is similar to a zero coupon bond that has no interest payments but is issued at a discount to par an investor purchases the bill at a weekly auction below face value and redeems it at maturity at face value the difference between the face value and purchase price amounts to interest earned which can be used to calculate a treasury bill s yield the treasury department uses two methods to calculate the yield on t bills the discount method and the investment method under the discount yield method the return as a percent of the face value not the purchase value is calculated for example an investor purchasing 90 day t bills with a face value of 10 000 for 9 950 will have a yield of discount yield 10 000 9 950 10 000 x 360 90 0 02 or 2 under the investment yield method the treasury yield is calculated as a percent of the purchase price not the face value following our example above the yield under this method is investment yield 10 000 9 950 9 950 x 365 90 0 0204 rounded or 2 04 note that the two methods use different numbers for days in a year the discount method is based on 360 days following the practice used by banks to determine short term interest rates and the discount yield or rate is how t bills are quoted on the secondary market the investment yield uses the number of days of a calendar year usually 365 or 366 which more accurately represents returns to the buyer but can be used to compare the yield on the t bill with that of a coupon security maturing on the same date 34yield on treasury notes and bondsthe rate of return for investors holding treasury notes and treasury bonds considers the coupon payments they receive semi annually and the face value of the bond repaid at maturity t notes and bonds can be purchased at par at a discount or at a premium depending on where the yield is at purchase relative to the yield when issued if a treasury is purchased at par then its yield equals its coupon rate or the yield at issue if a t bond or treasury note is purchased at a discount to face value the yield will be higher than the coupon rate while if it is purchased at a premium the yield will be lower than the coupon rate the formula for calculating the treasury yield on notes and bonds held to maturity is treasury yield c fv pp t fv pp 2 