High Discount Rate Rose for the 26-Week Treasury Bills Auction



26-week T-bills auction

The US Department of the Treasury held the weekly 26-week Treasury bills, or T-bills, auction on November 9. T-bills worth $28 billion were on offer—$2 billion higher than the previous auction.

The bid-to-cover ratio fell by 1.6% from the previous week to 3.7x in the November 9 auction. In 2015, so far, the bid-to-cover ratio averaged 4.0x.

Mutual funds like the PIMCO GNMA Fund – Class A (PAGNX) and the Prudential Government Income Fund – Class A (PGVAX) provide exposure to T-bills.

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Yield analysis

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 November 9 auction rose. It came in at 0.34%—higher than 0.28% in the previous week. It was also the highest YTD (year-to-date).

Market demand rose marginally

The fundamental market demand rose slightly from last week. Accepted indirect bids fell to 59.6% week-over-week from 62.8% in the previous week.

Meanwhile, the percentage of direct bids rose to 6.8% week-over-week from 2.5% a week ago. Direct bids include bids from domestic money managers—for example, Invesco (IVZ) and Wells Fargo (WFC).

Due to a slight improvement in the market demand, the share of primary dealer bids fell to 33.6% of the auction from 34.7% in the previous week. Primary dealers are a group of 22 authorized broker-dealers. They’re obligated to bid at US Treasury auctions and take up excess supply. They include firms like Goldman Sachs (GS) and Citigroup (C).


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