Must-know: Trends in the 1-month T-bills auction

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Nov. 20 2020, Updated 2:22 p.m. ET

U.S. Department of the Treasury auctions $34 billion in one-month T-bills

The U.S. Department of the Treasury holds weekly auctions for four-week Treasury bills (or T-bills). Last week’s auction was held on October 28. Unlike longer-dated Treasury notes (UST) and bonds (BND), Treasury-bills mature in a year or less.

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

Auction highlights

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  • Both the auction amount of $34 billion and the bid-to-cover ratio of approximately four times, remained unchanged from the previous week’s auction. The bid-to-cover ratio has averaged 4.3x at all auctions held in 2014.
  • The discount rate was slightly lower. It came in at 0.02%—compared to 0.03% the previous week. This was in line with the average for 3Q14.

Demand analysis

Market demand at the auction was higher. Demand was higher due to higher bidding from buy-and-hold accounts. Direct and indirect bids, as a percentage of total competitive bids, increased week-over-week. The percentage of direct bids increased from 3.6% to 7.6%. The ratio of indirect bids increased from 15.6% to 17.8%.

Due to the relatively stronger market demand, primary dealer allotments dropped from 80.8% to 74.6% week-over-week. That said, market demand still trailed its historical averages by a wide margin.

Primary dealer allotments averaged ~69.4% at the last ten auctions held by the U.S. Treasury. Indirect and direct bidder allotments averaged 26.3% and 4.4%, respectively. The high discount rates dropped sharply since the end of August. This is probably a result of falling demand.

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

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