X
<

Why Treasury yields fell last week despite positive economic data

PART:
1 2 3 4 5 6 7
Part 3
Why Treasury yields fell last week despite positive economic data PART 3 OF 7

Must-know: Why did the demand for 3-month T-bills increase?

A surge in demand for three-month T-bills

Treasury bills (or T-bills) are short-term debt obligations issued by the U.S. government through a single-price auction, meaning all the competitive and non-competitive bidders are issued T-bills at a yield quoted by the lowest bidder. T-bills are quoted at a discount to face value.

Last week’s T-bill auctions included $25 billion one-month (or four-week) and $25 billion one-year (or 52-week) T-bills auctioned on April 29, plus $25 billion three-month (or 13-week) and $23 billion six-month (or 26-week) T-bills auctioned on April 28. The Department of Treasury also auctioned $15 billion floating rate notes on April 29.

We have already discussed the one-month T-bill auction in the previous part of the series. We will cover the three-month T-bill auction in this part of the series.

Must-know: Why did the demand for 3-month T-bills increase?

The demand for three month T-bills continued to rise as reflected in the bid-to-cover ratio increasing to 4.89x for the April 28 auction from 4.64x for the April 21 auction. The discount rate also dropped to 0.020% from 0.030% for the April 21 auction indicating aggressive bidding. Primary dealers were the most active participants with 77.3% of the total $25 billion allotted to them.

ETFs investing in T-bills are SPDR Barclays Capital 1-3 Month T-Bill ETF (BIL) and iShares Barclays Short Treasury Bond Fund (SHV). Investors looking for short-term investment opportunities like T-bills, but are ready to take higher risk can invest in ETFs like PIMCO Enhanced Short Maturity Exchange-Traded Fund (MINT). PIMCO Enhanced Short Maturity Exchange-Traded Fund (MINT) invests in short-term securities such as T-bills, commercial papers, mortgage-backed securities, etc. A total of 70% of the fund’s assets are deployed in securities with maturity of less than a year. Financial services firms like Goldman Sachs (GS) and JPMorgan Chase & Co. (JPM) regularly issue short-term securities to meet their short-term funding requirements. Investors looking at a short-term horizon may invest in those securities.

To know more about 6-month T-bill auction held on April 28, read the next part of the series.

Interested in MINT? Receive notifications on the latest research and sign up for a Market Realist account in one simple step:

Suceess! Your Market Realist account has been created and you’ll receive email alerts on the latest research. Check your email for your temporary account password.

Success! has been added to your Ticker Alerts.

Success! has been added to your Ticker Alerts. Click here to manage subscriptions.

X

Please select a profession that best describes you: