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Why was the short-term T-Bills auction strong last week?


Nov. 26 2019, Updated 4:45 p.m. ET


Last week, public auctions for a number of Treasury securities were held. The short-term securities that have already been auctioned last week include four-week, 13-week, and 26-week T-Bills (BIL). 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. As the bill price and its yield share an inverse relationship, the lowest yield gives the U.S. Treasury the maximum proceeds from an auction.

Strong coverage

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The initial announcement for the four-week T-bill (BIL) was made on Monday, March 17. The announcement mentioned the issue size ($35 billion), auction date (March 18), and settlement date (March 20). The issue will mature on April 17, 2014. The Treasury rate for the four-week bill auction held on Tuesday, March 17, came in at 0.060%—higher than last week’s rate of 0.055%—with a high bid-cover ratio of 4.27x, compared to 4.11x recorded for the previous week. The bid-cover ratio measures the total dollar amount for bids for a particular auction compared to total value of bids accepted. The higher the ratio, the higher is the demand for the T-bills auctioned.

Modest coverage

Coverage for the weekly 13-week and 26-week T-Bills (BIL) auction was modest at bid-cover ratio of 4.42x for the 13-week and 4.86x for the 26-week.

The Treasury’s announcement for the auction of the 13- and 26-week T-Bills was made on March 12. Both T-bills were auctioned on Monday, March 17. The 13-week T-bill was issued at a discount of 0.05%. The bid-cover ratio for the $25 billion issue was reported at 4.42x, compared to previous week’s 4.76x, implying that the investor demand for the issue was relatively low.

The 26-week T-bill was also auctioned on Monday, March 17. The T-bill was issued at a discount of 0.08%, unchanged from last week’s auction. The bid-cover ratio for the $23 billion issue size was reported at 4.86x compared to the previous week’s 4.97x.

Some of the relevant ETFs that have substantial holdings in the U.S. Treasuries would include iShares Short Treasury Bond (SHV) and iShares 1-3 Year Treasury Bond (SHY). iShares Short Treasury Bond (SHV) tracks the performance of the Barclays U.S. Short Treasury Bond Index having maturity of between one and 12 months. iShares 1-3 Year Treasury Bond (SHY) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays U.S. 1-3 Year Treasury Bond Index.

Apart from the short-term T-bills, the U.S. Treasury department also issued the Treasury Inflation-Protected securities (TIP) last week.

Part 5 discusses the issuance of the Treasury inflation protected securities.


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