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How Indirect Bidders Lost Interest in Four-Week Treasury Bills on October 6

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Four-week Treasury bills auction

The US Department of the Treasury conducted the weekly auction for four-week T-bills (Treasury bills) on October 6. The issuance was $8 billion—$2 billion lower than the previous week. We should note that this borrowing quantum has been lowered consecutively for last six weeks.

The bid-to-cover ratio of these bills, depicting overall demand, fell by 9.1% from the previous week to 9.7x. Coverage at the one-month T-bills auction has averaged 4.2x so far in 2015—down from 4.4x for all the auctions held in 2014.

The high discount rate for the October 6 auction came in at 0%—the same for the last four weeks.

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Market demand

The market demand for four-week T-bills fell from the previous week. The percentage of indirect bids fell to 29.9% from 42.7% one week prior. Indirect bidders include foreign central banks.

Domestic investors’ interest in the auction, however, rose slightly in the week ending October 9. The percentage of direct bids rose to 8.3% from 6.7% the previous week. Direct bidders include domestic money managers like BlackRock (BLK) and Wells Fargo & Company (WFC).

The share of primary dealers rose to 61.8% from 50.7% the previous week. Primary dealers are a group of 22 broker-dealers authorized and obligated by the Fed to bid at US Treasury auctions and take up the excess supply. They include firms like JP Morgan Chase (JPM) and Morgan Stanley (MS).

Investment impact

MFs (mutual funds) like the John Hancock Government Income Fund Class A (JHGIX) and the PIMCO GNMA Fund Class A (PAGNX) have exposure to T-bills. The returns for JHGIX and PAGNX were negative for the week ending October 9, 2015, falling by 0.27% and 0.22%, respectively, on a week-over-week basis.

For more analysis of mutual funds, please visit MR’s Mutual Funds page.

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