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

High Discount Rate Rose and Demand Fell for 52-week T-Bills

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Sep. 21 2015, Published 1:07 p.m. ET

52-week Treasury bills auction

The U.S. Department of the Treasury auctioned $20 billion worth of 52-week Treasury bills, or T-bills, on September 15, 2015. T-bills mature in one year or less. They’re at the very short end of the yield curve. Other Treasury securities like Treasury notes, or T-notes, and Treasury bonds, or T-bonds, are issued for longer maturities.

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Key takeaways

  • The auction was held on September 15
  • The auction size was set at $20 billion— $2 billion lower than August auction.
  • The issue’s high discount rate was 0.44% – higher than 0.41% in the August 18 auction. This rate is the highest in 2015 yet.

Overall demand tanks

The overall demand for the 52-week T-bills fell in the September auction. The bid-to-cover ratio fell 16.60% to 3.2x month-over-month. Since 2014, this was the lowest ratio recorded for 52-week T-bills. The ratio averaged 4.2x in the auctions held in 2014. So far in 2015, the ratio has averaged 3.7x.

Bid-to-cover ratio measures the overall demand for the auction. The lower the ratio, the lower the overall demand for the auction and vice versa.

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Market demand falls

Like the overall demand, the market demand for the 52-week T-bills also fell from a month ago. The auction saw market demand fall to 32.30% of the competitive accepted bids in September—from 52.80% in the previous auction. The fall was due to lower indirect bids.

The indirect bidders’ category includes bids from overseas governments. The allotment to this category nearly halved to 26.40% in September from 51% in August. Direct bids include bids from domestic money managers like Invesco (IVZ) and Wells Fargo (WFC). The percentage of direct bidder allotments rose to 5.90% in September from 1.80% in the August auction.

Due to lower market demand, primary dealer bids were higher at 67.70% in September—from 47.20% in the previous auction. Primary dealers include companies like Credit Suisse (CS) and Goldman Sachs (GS).

Investment impact

Mutual funds, like the J Hancock Government Income A (JHGIX) and the Putnam US Government Income TR-A (PGSIX), have exposure to T-bills.

JHGIX provided a weekly return of 0.21% while PGSIX came in at -0.52%.

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