uploads///Weekly T Bill Issuance and Bid Cover Ratio

Indirect Bidders Gung-Ho for 13-week Treasury Bills on August 31


Sep. 9 2015, Published 11:54 a.m. ET

End of August 13-week T-bills auction

The US Department of the Treasury auctioned 13-week Treasury bills, or T-bills, worth $24 billion on August 31. The amount on offer was the same as in the previous week. Overall auction demand rose by 6.3% in the week, with the bid-to-cover ratio rising to 3.7x from 3.5x a week ago.

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Yield analysis

T-bills don’t pay a coupon. They’re offered at a discount to face value and are redeemable at par on maturity. The high discount rate for the August 31 auction came in at 0.095%—higher than 0.050% in the previous week.

Market demand rises

A soaring demand for 13-week T-bills from indirect bidders caused the market demand to jump. The percentage of indirect bids leaped to 31.2% of the accepted bids from a mere 5.4% a week ago. But unlike accepted indirect bids, direct bids fell marginally. These bids, which had formed 8.4% of accepted bids in the previous week, dropped to 7.4%. Direct bidders include domestic money managers—for example, State Street Corporation (STT).

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Due to a rise in market demand, the share of primary dealer bids fell to 61.5% from 86.2% 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 AG (DB) and Morgan Stanley (MS). A fall in the percentage of primary dealer bids shows strong fundamental market demand.

Investment impact

Mutual funds like the Oppenheimer Limited-Term Government Fund Class A (OPGVX) and the PIMCO GNMA A (PAGNX) have exposure to T-bills. Weekly returns of the OPGVX were negative and came in at 0.16%. The PAGNX’s week-over-week returns were also negative and stood at 0.23%.

In the next part of this series, we’ll look at the September 1 four-week T-bills auction.


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