Why coverage declined for 1-month T-bills despite higher bidding


Dec. 4 2020, Updated 10:53 a.m. ET

1-month (or 4-week) Treasury bills auction

The U.S. Department of the Treasury holds weekly auctions for one-month Treasury (SHV) (BIL) bills (or T-bills). Last week’s auction was held on October 21. Treasury bills (MINT) worth $34 billion were auctioned, which was $1 billion more than the previous week.

Bid-to-cover ratio

Despite the higher supply, the bid-to-cover ratio came in at ~4.0x, 9.2% higher than the previous week. The ratio has averaged ~4.4x in all one-month Treasury bill auctions held in 2014. The ratio fell due to higher supply of securities relative to the previous week. The absolute value of bids made was higher at the auction, compared to the auction held on October 15.

Competitive bidding

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Market demand at the auction rose to 19.2% of the competitive bids, compared to 14.2% at the previous week’s auction. Market demand was higher last week due to higher demand from indirect bidders. Indirect bids rose to 15.6% of competitive bids, from 10.5% the previous week. Direct bids were lower, though, falling to 3.6%, from 3.7% in the auction held on October 15. Although market demand rose at the October 21 auction, it still trailed the averages for the last ten auctions held. Direct and indirect bids have averaged 4.7% and 26.7%, respectively, of competitive bids over the last ten auctions.

As a result of lower relative market demand, primary dealer uptake was also relatively higher at 80.8%, compared to 68.6% at the last ten auctions.

Yields analysis

As we mentioned earlier, unlike longer-dated Treasuries (IEF) (UST), T-bills don’t pay a coupon. They’re issued at a discount to be redeemed at face value at maturity. The high discount rate at the October 21 auction came in at 0.03%, compared to 0.015% at the previous week’s auction.

Bond market outlook

The next section will discuss key events likely to impact bond markets this week, including the Fed’s October FOMC and the third-quarter U.S. GDP estimate.


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