Overall Demand Is Weak for 26-Week Treasury Bills



26-week Treasury bills auction

The U.S. Department of the Treasury held the weekly 26-week Treasury bills, or T-bills, auction on July 13. T-bills worth $24 billion were on offer. The auction amount hasn’t changed since March 23.

The bid-to-cover ratio fell 3.50% from the previous week to 3.9x. In 2015, the bid-to-cover ratio has averaged 4.2x. The ratio depicts the overall demand for the auction.

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Investment impact

Mutual funds like the MFS Government Securities A (MFGSX) and the T. Rowe Price US Treasury Long-Term (PRULX) invest in T-bills.

  • MFGSX provided a weekly return of 0.44%.
  • PRULX’s week-over-week return came in at 2.05%.

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 0.10%—up from 0.085% in the previous week.

Lackluster market demand

Fundamental market demand fell sharply last week—both indirect and direct bids fell. Accepted indirect bids fell to 33.50% week-over-week from 42.70% in the previous week. Indirect bids are from foreign central banks.

Meanwhile, the percentage of direct bids fell to 4.90% week-over-week from 11% a week ago. Direct bids include bids from domestic money managers—for example, Invesco (IVZ).

Due to lower market demand, the share of primary dealer bids rose to 61.70% of the auction from 46.40% in the previous week. 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). A rise in the percentage of primary dealer bids is a sign of weak fundamental market demand.


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