13-week Treasury bill demand increases despite higher issuance



13-week T-bill auction held on July 28

The U.S. Treasury held the auction for three-month, or 13-week, Treasury bills (MINT) on July 28. $27 billion worth of Treasury bills (or T-bills) were on offer. The issue size was slightly higher than the $26 billion recorded at the auction held on July 21.

The high discount rate was higher at 0.03% in the July 28 auction, compared to 0.025% in the auction held the previous week. The average discount rate for 2Q14 was reported at 0.03% compared to 0.05% in the 1Q14.

Key demand-side trends

The bid-to-cover ratio for the July 28 auction came in higher at 4.71x, despite the higher issuance amount. The average bid-to-cover ratio in 2Q14, came in at 4.72x, compared to 4.54x in June. The bid-to-cover ratio in the first half of 2014 averaged 4.61x.

Bidder demand

The share of primary dealers in the July 28 auction was slightly lower at ~67%, compared to the previous week’s auction. The percentage of indirect bids increased from ~25% to ~28% in the July 28 auction. Direct bids were lower, accounting for just ~5% of the total issuance.

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Direct bids are key indicators of domestic market demand, while indirect bids include bids made by foreign sovereigns and central banks. The demand from overseas bidders has increased this year, due to geopolitical risks abroad. This has increased the demand for safe-haven assets like U.S. Treasuries and investment-grade corporate bonds.

Primary dealers act as market makers at Treasury auctions and clean up excess supply relative to demand for the securities on auction. Primary dealers are a group of 22 financial broker or dealer firms that include financial institutions like Goldman Sachs and Citigroup. Both Goldman Sachs (GS) and Citigroup (C) are part of the S&P 100 Index (OEF) as well as exchange-traded funds (or ETFs) like the Vanguard Financials ETF (VFH).

One-month T-bill auction

In the following section, we’ll analyze the key takeaways from the one-month Treasury bill (MINT) auction held on July 29.



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