26-week T-bills auction
The U.S. Department of the Treasury held the weekly 26-week Treasury bills, or T-bills, (BIL) (MINT) auction on March 23. T-bills worth $24 billion were on offer. This was $2 billion lower than the previous seven weeks.
The bid-to-cover ratio rose 3.6% from the previous week to 3.7x. This was the first rise in six weeks. In 2015, so far, the bid-to-cover ratio averaged 4.16x.
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 March 23 auction came in at 0.105%. This was lower than 0.145% in the previous week.
Market demand rises
Fundamental market demand rose in the week. This was the second time in the past six weeks that market demand rose. Both direct and indirect bidders showed renewed interest in the auction. The percentage of direct bids rose from 4.3% to 6% week-over-week. Direct bids include bids from domestic money managers—for example, Invesco (IVZ). Meanwhile, indirect bids rose from 28.5% to 37.3% week-over-week.
As a result, the share of primary dealer bids fell from 67.2% to 56.7% in the week. A fall in the percentage of primary dealer bids is a sign of strong fundamental market demand. Primary dealers are a group of 22 authorized broker dealers. They’re obligated to bid at US Treasury auctions and take up excess supply. They include firms like Goldman Sachs (GS) and Citigroup (C). GS and C are part of the SPDR S&P 500 ETF (SPY) and the SPDR Financial Select Sector ETF (XLF).