Auction Quantum Rose for 52-Week Treasury Bills



52-week T-bills auction

The US Department of the Treasury auctioned $12 billion worth of 52-week Treasury bills, or T-bills, on November 10, 2015. T-bills mature in a year or less. They’re 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

  • The auction was on November 10.
  • The auction size was $12 billion—$2 billion higher than October’s auction. The borrowing quantum was higher in the November auction after three months of a consecutive reduction.
  • The issue’s high discount rate rose. It was 0.50%—higher than 0.21% in the October auction. The high discount rate for November is the highest in 2015, so far.

Overall demand falls

The bid-to-cover ratio fell 2.2% to 4.03x month-over-month. The ratio averaged 4.2x in the auctions held in 2014. So far, in 2015, the ratio averaged 3.8x.

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

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Market demand rose

Unlike the overall demand, the market demand for the 52-week T-bills rose from a month ago. The auction saw the market demand rise to 52.5% of the competitive accepted bids in November—from 41.1% in the previous auction. The rise was due to higher indirect bids.

The “indirect bidders” category includes bids from overseas governments. The allotment to this category rose to 47.9% in November from 36.6% in October. Direct bids include bids from domestic money managers like Invesco (IVZ) and Wells Fargo (WFC). The percentage of direct bidder allotments rose to 4.6% in November from 4.5% in the October auction.

Due to higher market demand, primary dealer bids were lower at 47.5% in November—from 58.9% in the previous auction. Primary dealers include companies like Credit Suisse (CS) and Goldman Sachs (GS).

Investment impact

Mutual funds like the Prudential Government Income Fund – Class A (PGVAX) and the J Hancock Government Income Fund – Class A (JHGIX) have exposure to T-bills.

PGVAX’s weekly returns rose by 0.23%. The weekly returns were 0.15% for JHGIX.


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