uploads/// Month Treasury Bill Issuance versus Bid Cover Ratio

Market Demand Rises for the 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 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.

Article continues below advertisement

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 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).

Investment impact

Mutual funds like the Prudential Government Income A (PGVAX) and the Pimco GNMA A (PAGNX) invest in T-bills. The week-over-week return for the Prudential Government Income A stood at 0.34% and the Pimco GNMA A stood at 0.29%.


More From Market Realist