Rates in T-Bill Auction Are Highest in 3 1/2 Years

Interest rates on short-term Treasury bills rose in the latest auction to the highest levels since Sept. 10, 2001.

The Treasury Department auctioned $20 billion in three-month bills at a discount rate of 2.800%, up from 2.735% last week. An additional $18 billion in six-month bills was auctioned at a discount rate of 3.035%, up from 3.000% last week.

The new discount rates understate the actual return to investors -- 2.859% for three-month bills, with a $10,000 bill selling for $9,929.22, and 3.125% for a six-month bill selling for $9,846.56.

In a separate report, the Federal Reserve said the average yield for one-year Treasury bills, a popular index for making changes in adjustable-rate mortgages, rose to 3.31% last week from 3.24% the previous week.