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

Auction Amount for 52-Week T-Bills Down for Third Straight Month

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52-week Treasury bills auction

The US Treasury auctioned $10 billion in 52-week T-bills (Treasury bills) on October 14, 2015. T-bills mature in a year or less, and they are 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 from this issuance are:

  • The auction was held on October 14.
  • The auction size was set at $10 billion, which was $10 billion lower than September’s auction. The borrowing amount has been reduced consecutively for three months.
  • The issue’s high discount rate was 0.205%, lower than 0.440% in the September auction.

Overall demand jumps

The overall demand for the 52-week Treasury bills rose in the October auction mainly due to a reduction in the auction size to half, compared to the previous month. The bid-to-cover ratio rose 30.0% to 4.1x month-over-month. This was the highest ratio since the September 2014 auction. The ratio had averaged 4.2x in the auctions held in 2014. So far in 2015, the ratio has averaged 3.7x.

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

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Market demand rose

Similar to overall demand, market demand for the 52-week Treasury bills also rose from a month ago. The auction saw market demand rise to 41.1% of October’s competitive accepted bids, from 32.3% in the previous auction. The rise was due to higher indirect bids.

The indirect bidders’ category includes bids from overseas governments. Allotment to this category rose to 36.6% in October from 26.4% in September. Direct bids include bids from domestic money managers like Invesco (IVZ) and Wells Fargo (WFC). The percentage of direct bidder allotments fell to 4.5% in October from 5.9% in the September auction.

Due to higher market demand, primary dealer bids were lower at 58.9% in October, down from 67.7% in the previous auction. Primary dealers include Credit Suisse (CS) and Goldman Sachs (GS).

Investment impact

Mutual funds such as the John Hancock Government Income Fund (JHGIX) and the PIMCO GNMA Fund (PAGNX) have exposure to T-bills. JHGIX’s weekly returns were up by 0.25%, and the weekly return of the PAGNX came in at 0.2%.

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