Four-week Treasury bills auction
The US Department of the Treasury conducted the weekly auction of four-week Treasury bills, or T-bills, on October 27. The issuance was $5 billion. It was the same as the previous week. The US Department of the Treasury has maintained the borrowing quantum for three weeks in a row.
Overall demand falls
The bid-to-cover ratio for these bills shows the overall demand. It fell from 4.5x to 3.8x week-over-week. So far, the coverage of the one-month T-bills auction averaged 4.3x in 2015. It’s just marginally down from 4.4x for all of the auctions held in 2014.
The high discount rate for the October 27 auction came in at 0.01%. It was lower than 0.12% in the previous week.
Market demand hits the lowest level
The market demand for the four-week T- bills fell from the previous week. It fell from 40.2% a week ago to 8.8% last week—the lowest ever.
The percentage of accepted indirect bids fell from 37.8% to 2.4% week-over-week. It was the lowest ever. Indirect bids include bids from a foreign government. Domestic investors’ interest in the auction rose from the previous week. The percentage of direct bids rose from 2.4% to 6.4% week-over-week. Direct bids include domestic money managers—for example, BlackRock (BLK) and Wells Fargo (WFC).
The share of primary dealer bids rose from 59.8% in the previous week to 91.2%—the highest ever. 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 J.P. Morgan (JPM) and Morgan Stanley (MS). The rise in the share of primary dealers indicates weak fundamental demand.
The MassMutual Select Strategic Bond A (MSBAX) invests 27% of its assets in Treasury securities with around 13% in the securities that mature within one year. The fund’s weekly return fell by 0.20%.
The J Hancock Government Income A (JHGIX) invests 27% of its assets in Treasury securities with around 5% in the securities that mature within one year. JHGIX’s weekly return came in at -0.26%.
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