uploads///Weekly T Bill Issuance and Bid Cover Ratio

Indirect Bidders Return to Purchase 13-Week Treasury Bills

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Jul. 21 2015, Updated 8:06 a.m. ET

13-week Treasury bills auction

The U.S. Department of the Treasury auctioned 13-week Treasury bills, or T-bills, worth $24 billion on July 13. The amount on offer was the same as the previous week.

Overall auction demand, as represented by the bid-to-cover ratio, was up by 6.50%—compared to last week. The bid-to-cover ratio rose from 3.8x a week ago to 4.1x on July 13.

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Investment impact

Mutual funds like the Vanguard GNMA Fund Investor Shares (VFIIX) and the Wasatch-Hoisington US Treasury (WHOSX) have exposure to T-bills.

  • VFIIX provided a week-over-week return of 0.40%.
  • WHOSX’s weekly return came in at 2.60%.

Yield 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 July 13 auction came in at 0.015%—the same as in the previous week.

Market demand rose

Market demand jumped for 13-week T-bills, led by a rise in allotted indirect bids. The percentage of indirect bids grew to 25.30% of the accepted bids from 10.40% a week ago. Like accepted indirect bids, direct bids also rose. These bids formed 9.10% of accepted bids in the previous week. They rose to 12.60%. Direct bidders include domestic money managers—for example, State Street (STT).

Due to high market demand, the share of primary dealer bids tanked to 62.10% from 80.50% in the previous 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 Goldman Sachs (GS) and Citigroup (C). A fall in the percentage of primary dealer bids shows strong fundamental market demand.

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