Must-know: Analyzing the 6-month Treasury bills auction

Phalguni Soni - Author

Nov. 20 2020, Updated 3:49 p.m. ET

Treasury securities auctions in the week ended October 3

The U.S. Department of the Treasury auctions debt securities of varying maturities each week, including Treasury bills, Treasury notes, and Treasury bonds. Treasury bills (or T-bills) mature in a year or less. The iShares Short Treasury Bond ETF (SHV) and the SPDR Lehman 1-3 Month T-Bill (BIL) have exposure to Treasury bills. Last week, the U.S. Department of the Treasury auctioned $78 billion worth of Treasury bills.

The weekly 6-month Treasury bills auction held on September 29

The U.S. Treasury auctioned 6-month Treasury bills worth $24 billion, $1 billion higher than the previous week. Auction demand was lower though, with the bid-cover ratio falling by ~8.7% to 4.30x, week-over-week. The ratio has averaged 4.81x in 2014.

The bid-cover ratio is an important demand indicator. It’s the total value of bids received divided by the value of securities on offer. A higher ratio implies higher demand, and vice versa.

Yields analysis

T-bills don’t pay a coupon. They’re offered at a discount to face value and redeemable at par on maturity. The high discount rate for the September 29 auction came in at 0.04%, the same as the previous week. The discount rate averaged 0.05% in 3Q2014.

Market demand falls

The auction saw market demand fall, primarily due to lower direct bids, which fell from 13.6% to 8.4% of the total competitive accepted bids, week-over-week. Direct bids are a category which includes domestic money managers, such as American Insurance Group (or AIG).

Indirect bidder allotments rose to ~25.2% from ~22.4%, week-over-week. Indirect bids include demand from foreign governments and central banks.

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The share of primary dealer bids rose to ~66.4% from ~64% the previous week. 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 who are obliged to bid at U.S. Treasury auctions and mop up excess supply. They include firms such as Goldman Sachs Group Inc (GS). GS is part of DIA, SPY, and QWLD.

3-month Treasury bills auction

In the following section, we’ll analyze the key takeaways from the 3-month Treasury bills auction which was also held on September 29.

For more bond market trends and analysis, please visit Market Realist’s Fixed Income ETFs page.


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