Must-know: An overview of the 52-week Treasury bills auction

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Nov. 20 2020, Updated 3:27 p.m. ET

U.S. Treasury bill auctions in the week ending September 19

The U.S. Treasury auctioned $102 billion worth of Treasury bills (or T-bills) last week. Besides the weekly auctions for the four-week, 13-week, and 26-week T-bills, the monthly 52-week T-bill auction was also held. T-bills mature in a year or less. They’re at the very short end of the yield curve. Other Treasury securities, like Treasury notes (IEF) and bonds (TLT), are issued for longer maturities.

Highlights of the 52-week, or one-year, T-bill auction held on September 16

The auction size was set at $25 billion—unchanged from August’s auction. The auction demand was slightly lower, with the bid-to-cover ratio falling to 4.06x—compared to 4.10x in August. The ratio averaged ~4.41x in 2014.

Yields analysis

T-bills don’t pay a coupon. They’re offered at a discount to face value. They’re redeemable at par on maturity. The high discount rate for September’s 52-week T-bill auction came in at 0.12%—slightly higher than the 0.105% reported in August. The discount rate averaged 0.113% in 2014.

Market demand comes in lower

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The auction saw market demand fall slightly to ~39% of competitive accepted bids—from 40% in August’s auction. Lower indirect bids include bids from overseas governments. They were responsible for the fall in market demand. The percentage of indirect dealer allotments fell from ~37% in August’s auction, to ~36% in September. The recently appreciating dollar may have made the low yields unattractive for many overseas investors. The Broad Trade Weighted U.S. Dollar Index increased by 1.65% this month—up to September 19.

Primary dealer bids were higher at ~61%—from ~60% in August. An increase in the percentage of primary dealer bids is a sign of weaker fundamental market demand. Primary dealers are a group of 22 authorized broker-dealers. They have to bid at U.S. Treasury auctions and clean up excess supply. They include firms like JPMorgan Securities LLC (JPM). JPM is part of the SPDR Dow Jones Industrial Average ETF (DIA) and the Vanguard Total Stock Market ETF (VTI).

26-week T-bills auction

In the next part of the series, we’ll discuss details about the 26-week, or six-month, T-bill auction held last week.

Visit the Market Realist U.S. Equity page to learn more about the industry.

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