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Bid-to-Cover Ratio Jumped for 4-Week Treasury Bills

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Four-week Treasury bill auction

The US Treasury conducted its weekly auction of four-week Treasury bills (or T-bills) on December 8, 2015. The issuance was $45 billion, the same amount as in the previous week.

The bid-to-cover ratio of these bills, depicting overall demand, rose 9.3% from the previous week to 3.4x. Coverage at the one-month T-bill auction has averaged 4.2x so far in 2015, down from 4.4x for all the auctions held in 2014.

The high discount rate for the December 8 auction came in at 0.24%, higher than 0.19% in the previous week and the highest rate year-to-date.

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Market demand rose

Market demand for four-week Treasury bills rose from the previous week. The percentage of indirect bids rose to 31.2% from 20.1% a week ago. Indirect bidders include foreign central banks.

Domestic investors’ interest in the auction fell from the previous week. The percentage of direct bids fell to 10.9% from 11.7% week-over-week. Direct bidders include domestic money managers such as BlackRock (BLK) and Wells Fargo (WFC).

The share of primary dealers fell to 58.0% from 68.2% in the previous week. Primary dealers are a group of 22 broker-dealers authorized by the Fed. They’re obligated to bid and take up the excess supply at US Treasury auctions. They include companies such as JPMorgan Chase (JPM) and Morgan Stanley (MS).

Investment impact

Mutual funds such as the Vanguard GNMA Investor Fund (VFIIX) and the MFS Government Securities A Fund (MFGSX) have exposure to T-bills.

The weekly return of VFIIX was up by 0.31%. MFGSX’s week-over-week return was up by 0.44%.

For more analysis on mutual funds, please visit Market Realist’s Mutual Funds page.

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