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.
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).
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.
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.