Bid-to-Cover Ratio: Highest Mark Ever for the 4-Week T-Bills Auction



Four-week T-bills auction

The US Department of the Treasury conducted the weekly auction of four-week Treasury bills, or T-bills, on September 29. The issuance was $10 billion. It was $5 billion lower than the previous week. The US Treasury lowered the borrowing quantum for five consecutive weeks.

The bid-to-cover ratio for these bills depicts the overall demand. It rose 13.20% from the previous week to 10.7x—the highest ever. The coverage at the one-month T-bills auction has averaged 4x  in 2015—down from 4.4x for all of the auctions held in 2014.

The high discount rate for the September 29 auction came in at zero. In the previous week, the high discount rate was also 0%.

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Market demand fell

Market demand for the four-week T-bills fell from the previous week. The percentage of indirect bids fell from 81.40% to 42.70% week-over-week. Indirect bidders include foreign central banks.

Domestic investors’ interest in the auction rose from the previous week. The percentage of direct bids rose to 6.70% from 2.70% week-over-week. Direct bidders include domestic money managers—for example, BlackRock (BLK) and Wells Fargo (WFC).

The share of primary dealer bids rose to 50.70% from 15.80% 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 JPMorgan Chase (JPM) and Morgan Stanley (MS). The rise in the share of primary dealers indicates weak fundamental demand for the auction.

Investment impact

Mutual funds like the J Hancock Government Income A (JHGIX) and the American Funds US Government Sec A (AMUSX) invest in T-bills.

JHGIX provided a week-over-week return of 0.57%. Meanwhile, AMUSX’s weekly return came in at 1.13%

For more mutual fund trends and analysis, please visit Market Realist’s Mutual Fund page.


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