Must-read: Key takeaways from the 52-week Treasury bills auction


Nov. 26 2019, Updated 1:59 p.m. ET

Treasury bills auctions overview

Last week, the U.S. Treasury auctioned $109 billion worth of Treasury bills. There were no auctions held for longer-dated Treasury notes (IEF) (UST) or bonds (TLT). Treasury bills are securities that mature in a year or less. They’re at the very short-end of the yield curve. They’re also most influenced by changes in the federal funds rate, the base rate for the economy.

The iShares Barclays Short Treasury Bond ETF (SHV) and the SPDR Barclays 1-3 Month T-Bill (BIL) provide exposure to Treasury bills.

52-week Treasury bills auction

The U.S. Department of the Treasury holds the 52-week Treasury bills auction each month. At last week’s auction on October 15, $25 billion worth of Treasury bills (or T-bills) were auctioned.

Auction highlights:

  • The auction amount of $25 billion has remained unchanged for all auctions since March, 2014.
  • The bid-cover ratio came in at ~3.9x, the lowest since February, 2014.
  • The high-yield awarded at the auction, came in at 0.1%, the lowest since the July auction.

Demand analysis: Bid-cover ratio slumps

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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 lower ratio implies lower demand, and vice versa. Despite the supply remaining unchanged at October’s auction, the bid-cover ratio fell by 5.9%. The ratio came in at ~4.1x at September’s auction. The ratio has averaged ~4.4x at all auctions held in 2014.

Demand analysis: Overseas bidding falls

Market demand, consisting of direct and indirect bids, fell at October’s auction. This was due to lower bidding from indirect bidders. Indirect bidders include foreign central banks and supranationals. The ratio of indirect bids fell from 35.7% of the competitive accepted bids at September’s auction, to 28.8% of the competitive accepted bids at last week’s auction. The percentage of direct bids was almost unchanged at 3.2%.

Due to lower market demand, primary-dealer uptake was higher at 68.1% of the competitive accepted bids. Primary dealers are a group of 22 securities dealers and brokers, obliged to act as market-makers at Treasury auctions. Primary dealers, such as the Goldman Sachs Group, Inc. (GS), mop up excess supply relative to demand.

Six-month Treasury bills auction

In the next part of the series, you’ll read about the highlights from the six-month T-bills auction.


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