Must-know trends that affect pricing at T-bill auctions


Dec. 4 2020, Updated 10:53 a.m. ET

Treasury bill issuance

fFr the week ended June 27, the U.S. Treasury held auctions for all four Treasury bill maturities. The U.S. Treasury holds weekly auctions for the four-week, 13-week, and 26-week Treasury bills. But its auctions for 52-week Treasury bills (SHY) take place only once a month. A total of $98 billion worth of T-bills were auctioned in the week ended June 27.

Demand-side factors affecting T-bill auctions

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Bidding activity at all four auctions wasn’t particularly strong. Bid-to-cover ratios declined for except for four-week bills. Bid-to-cover ratios for these bills were helped by a lower issue size of $25 billion for the week ended June 27, compared to $30 billion in the week ended June 20. Auction amounts for the other three maturities remained the same at $23 billion for three-month bills and $25 billion each for six-month and one-year maturities.

The bid-to-cover ratio was the highest for the 26-week T-bill auction at 4.6x. The one-year T-bill auction recorded the lowest bid-to-cover ratio at 4.06x. The bid-to-cover ratio is 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.

Pricing at the T-bill auctions

The high discount rate was lower for all T-bill auctions except the one-year maturity, which rose from 0.095% on May 28 to 0.11% on June 24. Demand for T-bills and their consequent pricing may have been affected by the increased offering in the week ended June 27.

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. The 52-week T-bills are offered every four weeks. T-bills are offered at a discount to face value, or 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), the iShares Short Treasury Bond Fund (SHV), and the PIMCO Enhanced Short Maturity Strategy Fund (MINT). Others, like the iShares 10-20 Year Treasury Bond (TLH), invest in long-term Treasuries.

In the next part of this series, we’ll discuss the key takeaways from the Treasury auctions of the week. Please read on.


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