Indirect Bidders Returned to the 13-Week Treasury Bills Auction

The US Department of the Treasury auctioned 13-week Treasury bills, or T-bills, worth $18 billion on September 28. The amount on offer was $2 billion lower than the previous week.

The overall auction demand fell by 3% in the week with the bid-to-cover ratio falling to 3.8x from 4x a week ago.

T-bills don’t pay a coupon. They’re offered at a discount to face value. They’re redeemable at par on maturity. The high discount rate for the September 28 auction came in at 0.015%. It was lower than 0.055% in the previous week.

The market demand rose for 13-week T-bills. It was led by soaring demand from indirect bidders. The percentage of indirect bids rose to 40.30% of the accepted bids from 13.80% a week ago.

Unlike accepted indirect bids, direct bids fell. These bids formed 6% of the accepted bids in the previous week. They fell to 3%. Direct bidders include domestic money managers—for example, State Street (STT).

Due to a rise in the market demand, the share of primary dealer bids fell to 56.80% from 80.20% 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 Deutsche Bank Securities (DB) and Morgan Stanley (MS). A fall in the percentage of primary dealer bids shows strong fundamental market demand.

Mutual funds, like the Oppenheimer Limited-Term Government A (OPGVX) and the PIMCO GNMA A (PAGNX), have exposure to T-bills.

The weekly returns for OPGVX rose by 0.48%. PAGNX’s week-over-week returns stood at 0.49%.