Bid-to-cover ratio for 3-month T-bills falls on higher issuance


Aug. 18 2020, Updated 10:15 a.m. ET

Bid-to-cover ratio for three-month T-bills falls

The U.S. Treasury holds the auction for three-month Treasury bills (or T-bills) on a weekly basis. Last week, the U.S. Treasury auctioned three-month Treasury bills amounting to $28 billion on August 4. This was higher than the $27 billion auctioned in the previous week.

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Auction sees lower market demand

Due to the higher issuance amount, demand for the bills was weaker, with the bid-to-cover ratio coming in at 4.56x, compared to 4.71x for the July 28 auction. The ratio has averaged 4.62x for auctions held in 2014. 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.

Overseas demand falls

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The share of primary dealer bids in the August 4 auction increased slightly, coming in at ~68% of the total competitive bids. The percentage of direct bids increased from ~5% to ~6% of competitive bids on a week-over-week basis. The percentage of indirect bids declined to ~26% from ~28%, compared to the July 28 auction.

While direct bids stem from domestic money managers like BlackRock (BLK) and institutional investors like American International Group (AIG), indirect bids include demand from foreign governments and central banks. Both BLK and AIG are part of the S&P 500 Index (IVV).

Yields analysis

The high discount rate for the August 4 auction came in at 0.025%—lower than the July 28 auction. The discount rate has averaged 0.05% and 0.03% for 1Q14 and 2Q14, respectively. A lower discount rate for short-term securities like T-bills, implies that markets are more sanguine about the future path of interest rate increases.

Investor options

You can invest in Treasury bills through exchange-traded funds (or ETFs) like T-bills include the iShares Short Treasury Bond Fund and the PIMCO Enhanced Short Maturity Strategy Fund (MINT). Others like the iShares 10–20 Year Treasury Bond, the iShares Barclays 20+ Year Treasury Bond Fund (TLT), and the ProShares Ultra 7–10 Year Treasury ETF invest in long-term Treasuries.



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