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Higher demand at the 13-week Treasury bill auction

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13-week T-bills auction

The U.S. Department of the Treasury auctioned 13-week, or three-month, Treasury bills (BIL) (MINT) (or T-bills) worth $24 billion on December 1, 2014. The auction amount hasn’t changed for several months. Auction demand was higher in the week. The bid-to-cover ratio came in at 4.7x, up from 4.3x a week ago.

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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 December 1 auction came in at 0.025%. It was slightly above the 0.02% recorded the previous week.

Market demand rises

Market demand increased sharply in last week’s auction. The percentage of indirect bids climbed from 10.9% to ~24% week-over-week. However, direct bids were lower. They fell to 4.5% from 9.3% week-over-week. Direct bids include domestic money managers such as State Street Corporation (STT).

The share of primary dealer bids fell to 71.4% from 79.8% in the previous week. A decrease in the percentage of primary dealer bids shows stronger fundamental market demand. Primary dealers are a group of 22 broker dealers authorized by the Fed. They’re obligated to bid at U.S. Treasury auctions and clean up excess supply. They include firms such as The Goldman Sachs Group (GS) and Citigroup Inc. (C), which are both part of the Standard & Poors depositary receipt (or SPDR) MSCI World Quality Mix exchange-traded fund (or ETF) (QWLD) and the iShares Core S&P 500 ETF (IVV).

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