Must-know: Highlights of the 6-month Treasury bills auction


Aug. 18 2020, Updated 6:24 a.m. ET

Treasury bills auctions in the week ending October 10

Last week, the U.S. Treasury held auctions for three Treasury bill (or T-bill) maturities—the four-week, 13-week, and 26-week. A total of $80 billion worth of T-bills were auctioned. 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. The iShares Short Treasury Bond ETF (SHV) and the SPDR Barclays 1-3 Month T-Bill (BIL) provide exposure to T-bills.

26-week—or six-month—T-bills auction held on October 6

Last week, the U.S. Treasury auctioned six-month T-bills worth $24 billion. This is the same as the previous week. Auction demand was higher. The bid-to-cover ratio increased by ~7.4% to 4.6x week-over-week. The ratio has averaged 4.8x 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 the October 6 auction came in at 0.04%. This was the same as in the previous week. The discount rate averaged 0.05% in 3Q14.

Market demand comes in higher

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The auction saw market demand rise week-on-week. There was higher demand from indirect bidders. Indirect bidder allotments increased to ~32.9% of competitive accepted bids—compared to ~25.2% reported the previous week. The share of primary dealer bids fell to ~60.4%—from ~66.4% the previous week. The ratio of direct bids fell to ~6.8%—from 8.4% week-over-week.

A decrease in the percentage of primary dealer bids is a sign of higher fundamental market demand. Primary dealers are a group of 22 authorized broker-dealers who are required to bid at U.S. Treasury auctions. They have to clean up excess supply. They include firms like Goldman Sachs & Co. (or GS).

Direct bids include domestic money managers—for example, American Insurance Group (AIG). Indirect bids include demand from foreign governments and central banks. AIG also issued $750 million in debt last week.

Click here to learn more about six-month T-bills.


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