uploads/// Month Treasury Bill Issuance versus Bid Cover Ratio

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


Nov. 2 2015, Published 8:22 a.m. ET

26-week Treasury bills auction

The US Department of the Treasury held the weekly 26-week Treasury bills, or T-bills, auction on October 26. T-bills worth $26 billion were on offer. It was the same as the previous week.

The bid-to-cover ratio measures the overall demand for the auction. The higher the ratio, the higher the demand and vice versa. The bid-to-cover ratio fell to 3.34x last week—compared to 3.56x in the previous week. So far, the bid-to-cover ratio averaged 4.03x in 2015.

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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 October 26 auction came in at 0.16%—higher than 0.11% in the previous week.

Market demand fell

The fundamental market demand fell last week from 40.5% to 32.5% a week ago due to the fall in the percentage share of direct bidders and indirect bidders.

The percentage of direct bids fell from 6.4% to 4.4% week-over-week. Direct bids include domestic money managers—for example, Invesco (IVZ). Indirect bids fell from 34.1% to 28.1% week-over-week. Indirect bidders include foreign central banks.

As a result, the share of primary dealer bids rose from 59.5% to 67.5% in the week. A rise in the percentage of primary dealer bids is a sign of weak fundamental market demand. 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).

Investment impact

Mutual funds like the Prudential Government Income A (PGVAX) and the Pimco GNMA A (PAGNX) invest in T-bills.

PGVAX’s week-over-week return fell by 0.4% while PAGNX fell by 0.15%.


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