26-week Treasury bills auction
The US Department of the Treasury held its weekly 26-week Treasury bills (or T-bills) auction on September 21. The Treasury offered $20 billion in T-bills—the same as in the previous week.
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 fell to 3.86x last week, compared to 3.99x in the previous week. So far in 2015, the bid-to-cover ratio has averaged 4.08x.
Treasury bills do not pay a coupon. They are offered at a discount to face value and are redeemable at par on maturity. The high discount rate for the September 21 auction came in at 0.115%—lower than 0.260% in the previous week.
Market demand fell
Fundamental market demand dropped last week from 51.2% to 41.2% from the previous week due to a fall in the percentage of indirect bidders. Indirect bids tanked from 49.5% to 26.8% week-over-week. Indirect bidders include foreign central banks.
The percentage of direct bids jumped from 2.3% to 14.5% week-over-week. Direct bidder include domestic money managers such as Invesco (IVZ).
Consequently, the share of primary dealer bids rose from 48.2% to 58.8% in the week. A rise in the percentage of primary dealer bids is a sign of weak fundamental market demand. Primary dealers are a group of 22 authorized broker-dealers. They are obligated to bid at US Treasury auctions and take up excess supply. They include firms such as Goldman, Sachs and Co. (GS) and Citigroup Global Markets (C).