Why 1-month Treasury bills see higher demand on indirect bids

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

Four-week Treasury bill auction held on July 15 sees higher demand

The one-month Treasury bill (BIL) auction is held weekly. The U.S. Treasury auctioned $35 billion worth of one-month, or four-week, Treasury bills (MINT) on July 15. The issue size was the same as the previous week’s offering. The high discount rate was also the same, at 0.02%.

Demand metrics

Despite the same amount on offer at the July 15 auction, the bid-to-cover ratio was higher at 4.32x compared to 4.27x in the July 8 auction. Primary dealers accounted for ~68% of the total competitive accepted bids—down from ~80% recorded in the previous week.

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The percentage of indirect bids to competitive bids increased, coming in at ~27%, compared to ~10% recorded in the July 8 auction. Indirect bids include bids from foreign governments and international monetary authorities, who place bids through a direct submitter, who places the bids on their behalf with the New York Fed.

Primary dealers are authorized securities firms or banks like JPMorgan (JPM), Goldman Sachs (GS), and Citigroup (C), who are required to make competitive bids at U.S. Treasury auctions. They 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.

In the next section, we’ll discuss the key trends apparent last week in the primary and secondary markets for investment-grade bonds.

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