Key investor takeaways from the 3-year US Treasury notes auction



Auction for three-year U.S. Treasury notes held on August 12

The auction for three-year Treasury notes (SHY) is held each month. The iShares 1–3 Year Treasury Bond ETF (SHY) has holdings in three-year Treasury notes.

The U.S. Treasury held this auction on August 12, putting $27 billion worth of securities on offer. The amount on offer was the same as July’s auction amount.

Bid-to-cover ratio decreases by 10%

Despite the same level of issuance, the bid-to-cover ratio was 10% lower at 3.03x—compared to 3.38x in the July auction. This was the lowest level since June, 2013. The ratio has averaged 3.31x this year.

The bid-to-cover ratio is a measure of demand for the securities on offer. It’s calculated as the total value of bids received divided by the value of securities on offer.

3-year notes updated


Foreign bids decline while domestic market demand increases

Overseas investor demand declined. The percentage of bids given to indirect bidders decreased from ~38% to ~36% month-over-month. The indirect dealer category includes foreign sovereigns and central banks.

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In comparison, direct bids increased from ~13% to ~19%. Direct bidders is a category that includes domestic money managers and financial sector companies like American Express (AXP), Invesco Ltd. (IVZ), and Capital One Financial (COF). An increase in the percentage of direct bids is a sign of higher underlying domestic market demand.

Primary dealers accounted for ~45% of bids—down from ~49% in the July auction. Primary dealers are authorized securities dealers or broker firms who act as market makers. They clean up excess supply at auctions. These dealers include firms such as JPMorgan Securities LLC and Citigroup Global Markets. JPMorgan and Citigroup are financial intermediaries that are part of the S&P 500 Index (SPX).

Yields trend lower on geopolitical concerns

The coupon rate on the three-year notes was unchanged from last month at 0.875%. The yield awarded for the notes came in at 0.924%—lower than the 0.992% at July’s auction. This was also the lowest yield awarded since the auction held in April, 2014.

US Treasury bills auctions

Last week, the U.S. Treasury also auctioned $104 billion worth of shorter-term T-bills. You can read a detailed analysis of the auctions in the next part in this series.


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