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Direct bids for the 4-week Treasury bills auction dropped sharply

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Four-week Treasury bills auction

The US Department of the Treasury conducted the weekly auction for four-week, or one-month, Treasury bills, or T-bills, on January 21. The issuance was $30 billion. It was the same as the previous four weeks.

The bid-to-cover ratio for these bills fell from 3.84x to 3.74x week-over-week. Coverage at the one-month T-bills (BIL) (MINT) auction averaged 4.4x for all of the auctions held in 2014.

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Yield analysis

The high discount rate for the January 21 auction came in at 0.005%. It was lower than 0.015% recorded in the previous week.

Indirect bidding rises

Market demand remained the same for the four-week T-bills. It was the same as the previous week. Unlike other T-bills auctions in the week, the percentage of indirect bids rose from 17.1% to 20.8% week-over-week. Indirect bidders include foreign central banks.

In contrast, the percentage of direct bids crashed. They fell from 5.5% to just 1.8% week-over-week. Direct bids include domestic money managers—for example, BlackRock (BLK).

The share of primary dealer bids remained the same at 77.4% in the week. Primary dealers are a group of 22 broker dealers authorized by the Fed. They’re obligated to bid at US Treasury auctions and take up the 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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