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.
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).