Why the US Treasury ups the T-bills auction size by 12%


Aug. 22 2014, Updated 5:00 p.m. ET

Treasury bills issuance last week

Last week, the U.S. Treasury held weekly auctions for three Treasury bill maturities—the four-week, 13-week, and 26-week Treasury bills (or T-bills). A total of $104 billion worth of T-bills was auctioned in the week ending August 15—about 12% higher than the previous week. The higher issuance was a result of the higher amount for one-month Treasury bills. The issuance of one-month T-bills increased by 25%, to $50 billion, from $40 billion the previous week.

26-week T-bill auction held on August 13

The U.S. Treasury auctioned $25 billion worth of 26-week T-bills in the week ending August 15. The issue size was the same as the previous week’s auction. The high discount rate was also the same at 0.05%. The average discount rate for 2Q14 was reported at 0.053%—lower than the 0.074% in 1Q14.

Last week’s T-bill auctions had a mixed trend for discount rates. While the six-month rates were unchanged, rates increased for the three-month and one-month maturities. A higher discount rate for the T-bills would imply higher demand at the higher discount rate at the auction.

Key demand-side metrics

Demand and bidding activity was relatively healthy in the six-month auction, although the bid-to-cover ratio decreased slightly to 4.72x—compared to 4.87x reported in the August 4 auction. The average bid-to-cover ratio in 2Q14 came in at 4.96x—compared to 4.79x in June and July.

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.

Bidder demand

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The share of primary dealer bids in the August 11 auction decreased to ~65% compared to ~67% in the previous week’s auction. Indirect bidders represented a strong demand component with the percentage of indirect bids increasing from ~29% to ~32% in the August 11 auction. The percentage of direct bids declined from ~4% to ~3% of the total competitive bids on a week-over-week basis.

Primary dealers act as market makers at Treasury auctions. They 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 are part of the S&P 100 Index (OEF) as well as exchange-traded funds (or ETFs) like the Vanguard Financials ETF (VFH).

Popular ETFs that invest in Treasury securities like T-bills are the SPDR Barclays 1-3 Month T-Bill ETF (SHY) and the PIMCO Enhanced Short Maturity Strategy Fund (MINT).

In the next part of the series, we’ll discuss the key takeaways from the 13-week T-bill auction.


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