Must-know: Why did the demand for 6-month T-bills see moderation?

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Aug. 18 2020, Updated 6:15 a.m. ET

Last week’s six-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 $35 billion one-month (or four-week) T-bills auctioned on May 6; plus, $25 billion three-month (or 13-week) and $23 billion six-month (or 26-week) T-bills auctioned on May 5. The Department of the Treasury also auctioned $24 billion ten-year Treasury notes on May 7, and $16 billion 30-year bonds on May 8.

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

After rising sharply to 5.28x during the April 28 auction, the bid-to-cover ratio for the auction of six-month T-bill moderated to, but remained high, at 5.06x for last week’s auction on May 5. The high discount rate remained stable at 0.045%.

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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 a 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 a maturity of less than a year. Goldman Sachs (GS) and Verizon Communication (VZ) form 2.7% of the total holdings of MINT.

To know more about last week’s auction of the ten-year Treasury notes, read the next part of the series.

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