Why coverage for 4-week T-bills rose despite higher issuance


Nov. 22 2019, Updated 7:00 a.m. ET

Last week’s one-month T-bill auction

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 $40 billion one-month (or four-week) T-bills auctioned on May 13 plus $25 billion three-month (or 13-week) and $23 billion six-month (or 26-week) T-bills auctioned on May 12.

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One-month T-bill issuance increased to $40 billion last week compared to $35 billion and $25 billion over the previous two weeks, in reverse chronological order. Despite higher issuance, demand (as reflected in the bid-to-cover ratio) increased substantially. The bid-to-cover ratio was up at 4.70x for the May 13 auction compared to 4.10x for the May 6 auction. The bid-to-cover ratio compares the number of bids received in a Treasury auction with the number of bids accepted (or the amount of securities issued). The higher the ratio, the greater the demand for the auctioned securities. A bid-to-cover ratio over two corresponds to a successful auction, while a ratio of less than one shows an under-bought auction.

Another positive takeaway from last week’s auction was more indirect bidders. Indirect bidders, including foreign banks and international authorities, grabbed 25% of the total issue—up from just 10% the week before. As indirect bidders generally purchase T-bills to be held to maturity, their higher share corresponds to higher end-user demand.

ETFs investing in one-month T-bills are the SPDR Barclays Capital 1–3 Month T-Bill ETF (BIL) and the iShares Barclays Short Treasury Bond Fund (SHV). Investors can also invest in ETFs like the PIMCO Enhanced Short Maturity Exchange-Traded Fund (MINT), which also includes short-term corporate securities that offer higher returns for marginally higher risk. The PIMCO Enhanced Short Maturity Exchange-Traded Fund (MINT) invests in short-term securities such as T-bills, commercial papers, and mortgage-backed securities. A total of 70% of the fund’s assets are deployed in securities with a maturity of less than a year. Goldman Sachs (GS) and Verizon Communication (VZ) form 2.7% of the total holdings of MINT.

To find out about the auction of three-month T-bills held on May 12, continue to the next part of this series.


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