Why did the discount rate on the 3-month T-bill fall?


Aug. 18 2020, Updated 5:32 a.m. ET

Last week’s three-month Treasury 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 $25 billion one-month (or four-week) T-bills auctioned on April 22, plus $25 billion three-month (or 13-week), and $23 billion six-month (or 26-week) T-bills auctioned on April 21.

Apart from T-bill auctions, last week also saw auctions for $32 billion two-year Treasury notes on April 22, $35 billion five-year Treasury notes on April 23, and $29 billion seven-year Treasury note on April 24.

We’ve already discussed the one month T-bill auction in the previous part of this series. We’ll cover three-month T-bill auctions in this part of the series.

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The demand for three-month T-bills recovered slightly during last week’s auction, as seen in the bid-to-cover ratio moving up to 4.64x from 4.59x the week before. The bid-to-cover ratio had seen a steep fall in the April 14 auction to 4.64x from 4.88x on April 7. The discount rate dropped to 0.030% on higher demand.

Investors looking for ETFs investing in T-bills can invest in the SPDR Barclays Capital 1–3 Month T-Bill ETF (BIL) or iShares Barclays Short Treasury Bond Fund (SHV). Investors looking for short-term investment opportunities like T-bills but ready to take higher risk can invest in ETFs like the PIMCO Enhanced Short Maturity Exchange-Traded Fund (MINT). The PIMCO Enhanced Short Maturity Exchange-Traded Fund (MINT) invests in short-term securities such as T-bills, commercial papers, and mortgage-backed securities. Of the fund’s assets, 70% are deployed in securities with maturity of less than a year. Financial services firms like Goldman Sachs (GS) and JP Morgan Chase (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 park their cash more safely.

To find out about the auction of six-month T-bills held on April 21, read on to the next part of this series.


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