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

Market Demand Rises for 26-week Treasury Bills on August 31

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Sep. 9 2015, Published 12:54 p.m. ET

End of August T-bills auction

The US Department of the Treasury held the weekly 26-week Treasury bills, or T-bills, auction on August 31. T-bills worth $24 billion were on offer—the same as in the previous week. The US Treasury Department has auctioned the same quantum of these T-bills since the March 23 auction.

The bid-to-cover ratio for the auction rose by 6.6% from the previous week to 3.7x. In 2015 so far, the bid-to-cover ratio has averaged 4.1x. The bid-to-cover ratio depicts the overall demand for the auction.

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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 0.27%—higher than the 0.20% in the previous week.

Market demand rose

After a fall in demand the previous week, the fundamental market demand rose last week, as did the quantum of accepted indirect bids and direct bids. Accepted indirect bids rose to 35.9% week-over-week from 31.8% in the previous week.

Meanwhile, the percentage of direct bids rose to 6.7% week-over-week from 5.4% a week ago. Direct bids include bids from domestic money managers—for example, Invesco (IVZ) and State Street Corporation (STT).

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Due to higher market demand, the share of primary dealer bids fell to 57.4% of the auction from 62.8% in the previous week. Primary dealers are a group of 22 authorized broker-dealers. They’re obligated to bid at US Treasury auctions and take up excess supply. They include firms like Goldman Sachs Group (GS) and Citigroup (C). A fall in the percentage of primary dealer bids is a sign of strong fundamental market demand.

Investment impact

Mutual funds such as the MFS Government Securities A (MFGSX) and the Prudential Government Income A (PGVAX) invest almost 9% of their assets in T-bills. The MFGSX provided a weekly return of 0.15% while the week-over-week return of the PGVAX came in at 0.24%.

In the next part of this series, we’ll look at the August 31 T-bills auction.

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