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 27. T-bills worth $24 billion were on offer—the same as in the previous week. The auction amount has been constant since the auction on March 23, 2015.
The bid-to-cover ratio measures the overall demand for the auction. The higher the ratio, the higher the demand and vice versa. The bid-to-cover ratio rose to 3.99x. It was higher than 3.67x in the previous week. So far, the bid-to-cover ratio has averaged 4.17x in 2015.
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 27 auction came in at 0.145%—higher than 0.135% in the previous week.
Market demand rises
Fundamental market demand jumped last week. Both, direct and indirect bidders actively participated in the auction. The percentage of direct bids rose from 2.70% to 4.40% week-over-week. Direct bids include domestic money managers—for example, Invesco (IVZ).
Indirect bids rose from 34.80% to 47.50% week-over-week. Indirect bidders include foreign central banks.
As a result, the share of primary dealer bids fell from 62.50% to 48.10% 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 U.S. Treasury auctions and take up excess supply. They include firms like Goldman Sachs (GS) and Citigroup (C).