Indirect Bidders Return to the 13-Week Treasury Bills Auction

The US Department of the Treasury auctioned 13-week Treasury bills (or T-bills) worth $24 billion on August 3. The amount on offer was the same as in the previous week. Overall auction demand jumped 11.1% in the week with the bid-to-cover ratio rising to 4.1x from 3.7x a week ago.

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 August 3 auction came in at 0.075%, higher than 0.050% in the previous week.

Market demand rose for 13-week Treasury bills, led by soaring demand from indirect bidders. The percentage of indirect bids jumped to 34.7% of the accepted bids, from 17.7% a week ago. Unlike accepted indirect bids, direct bids tanked. These bids, which had formed 9.7% of accepted bids in the previous week, fell to 2.7%. Direct bidders include domestic money managers like State Street (STT).

Due to a rise in market demand, the share of primary dealer bids fell to 62.7% from 72.6% 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 Deutsche Bank Securities (DB) and Morgan Stanley and Co. (MS). A rise in the percentage of primary dealer bids shows weak fundamental market demand.

Mutual funds like the Oppenheimer Limited-Term Government A (OPGVX) and the PIMCO GNMA A (PAGNX) have exposure to T-bills. Weekly returns of the OPGVX were negative and came in at -0.19%. The PAGNX’s week-over-week returns were also negative and stood at -0.15%.