Analyzing the key trends at recent Treasury bill auctions


Jun. 20 2014, Published 9:00 a.m. ET

The U.S. Treasury auctioned $78 billion worth of T-bills last week

Last week, the week ended June 13, the U.S. Treasury held weekly auctions for four-week, 13-week, and 26-week Treasury bills for $30 billion, $25 billion, and $23 billion, respectively. Bidding activity at all three auctions was particularly strong, with a bid-to-cover ratio exceeding 4.0x for all three auctions. The bid-to-cover ratio for the 26-week or six-month auction was particularly high, coming in at 5.28x. Comparatively, the three-month auction saw a higher bid-to-cover ratio in the previous week, coming in at 5.05x. The bid-to-cover ratio is computed as the total value of bids received divided by the value of securities on offer. The higher the ratio, the higher the demand for the securities on auction.

What are Treasury bills?

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Treasury bills or T-bills are auctioned by the U.S. Treasury. T-bills include securities that mature in less than a year. At present, the U.S. Treasury holds auctions for four-week, 13-week, 26-week, and 52-week maturities. These securities are also known as one-month, three-month, six-month, and one-year T-bills, respectively. The first three maturities are offered each week, while the 52-week T-bills are offered every four weeks. T-bills are offered at a discount to face value (the discount rate) and redeemable at par on maturity.

Popular ETFs that invest in Treasury securities like T-bills are the SPDR Barclays 1–3 Month T-Bill ETF (BIL) and the PIMCO Enhanced Short Maturity Strategy Fund (MINT)

Four-week T-Bill auction held on June 10

Last week’s one-month T-bill auction had a lower auction amount of $30 billion, compared to $35 billion the previous week. Consequently, the bid-to-cover ratio was also higher, at 4.68x compared to 4.38x at the June 3 auction. The high discount rate fell for the second consecutive week, to 0.03% compared to the 0.035% clocked in the previous week.

Primary dealers accounted for ~64.3% of the total competitive accepted bids, down from the ~75.4% recorded in the previous week. The percentage of indirect bids to competitive bids came in at ~30.3%, a substantial increase compared to the ~18.3% recorded in the June 3 auction. Indirect bids include bids from foreign governments and international monetary authorities, who place bids via a direct submitter on their behalf with the New York Fed.

Primary dealers are authorized securities firms or banks like Citigroup (C) and JPMorgan that are required to make competitive bids at U.S. Treasury auctions and that trade in these securities with the Federal Reserve Bank of New York in order to implement monetary policy. Currently, there are 22 authorized primary dealers. Investors can invest in the stocks of major financial institutions like Citigroup (C) and JPMorgan through ETFs like the SPDR S&P Bank ETF (KBE). Both Citigroup (C) and JPMorgan are also part of the iShares S&P 100 ETF (OEF).

To learn more about the T-bill auctions held in the week ended June 13, please move on to the next part of this series.


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