uploads///Four Week Treasury Bill Issuance versus Bid Cover Ratio

Why the 4-week Treasury bills auction saw higher market demand


Nov. 20 2020, Updated 11:30 a.m. ET

Four-week Treasury bills auction

The US Department of the Treasury reduced the weekly auction amount for four-week, or one-month, Treasury bills, or T-bills, from last week. The auction was conducted on December 23. The issuance was $30 billion—down $10 billion from the previous week.

Unlike auctions for other T-bills, the bid-to-cover ratio for these T-bills increased from 3.3x to 3.7x week-over-week. Coverage at the one-month T-bills (BIL) (MINT) auction averaged 4.4x for all the auctions held in 2014.

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Yield analysis

The high discount rate for the December 23 auction came in at 0.01%. It was lower than the 0.02% recorded in the previous week. It halved exactly for two successive auctions.

Indirect bidding rises

Market demand increased after falling for two consecutive weeks. The percentage of indirect bids increased from 20.6% to 29.8% week-over-week. Indirect bidders include foreign central banks.

However, direct bids were marginally lower. They fell from ~4% to 3.7% week-over-week. Direct bids include domestic money managers—for example, BlackRock (BLK).

The share of primary dealer bids fell from 75.4% to 66.5% in the 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 US Treasury auctions. They clean up excess supply. They include firms like J.P. Morgan (JPM). JPM is part of the SPDR MSCI World Quality Mix ETF (QWLD) and the SPDR Dow Jones Industrial Average ETF (DIA).

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


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