26-week Treasury bills auction
The US Department of the Treasury held the weekly 26-week Treasury bills (or T-bills) auction on August 3. T-bills worth $24 billion were on offer, the same as in the previous week. The US Treasury Department has auctioned the same quantum of these T-bills since the March 23 auction.
The bid-to-cover ratio fell by 2.5% from the previous week to 3.9x. In 2015 so far, the bid-to-cover ratio has averaged 4.2x. The bid-to-cover ratio depicts overall demand for the auction.
Treasury 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 August 3 auction came in at 0.165%, higher than 0.145% in the previous week.
Market demand fell
After a jump in demand in the previous week, fundamental market demand fell last week with the quantum of accepted indirect bids falling and direct bids rising. Accepted indirect bids fell to 31.6% week-over-week from 47.5% in the previous week.
Meanwhile, the percentage of direct bids rose to 7.9% week-over-week from 4.4% a week ago. Direct bids include bids from domestic money managers like Invesco (IVZ).
Due to lower market demand, the share of primary dealer bids rose to 60.5% of the auction from 48.1% 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 and Co. (GS), and Citigroup Global Markets (C). A rise in the percentage of primary dealer bids is a sign of weak fundamental market demand.