Bid-to-Cover Ratio Surged for 13-Week Treasury Bills Auction



13-week Treasury bills auction

The US Treasury Department conducted the weekly auction of 13-week Treasury bills (or T-bills) on December 14. The issuance was worth $28 billion, the same as in the previous week.

Overall auction demand, as represented by the bid-to-cover ratio, was up by 9.2% as compared to a week ago. The bid-to-cover ratio rose from 3.6x a week ago to 3.3x on December 14.

Mutual funds such as the Oppenheimer Limited-Term Government Fund – Class A (OPGVX) and the John Hancock Government Income Fund – Class A (JHGIX) provide exposure to T-bills.

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Yield analysis

T-bills don’t pay a coupon. They are offered at a discount to face value and are redeemable at par on maturity. The high discount rate surged for the December 14 auction and came in at 0.28%, the same as compared to a week ago, which is also the highest so far in 2015.

Market demand rose

Market demand rose for the 13-week Treasury bills from 33.6% the previous week to 51.2% last week. The share of indirect bids rose to 36.4% of the accepted bids, from 25.3% a week ago. Indirect bids depict demand from foreign central banks.

Direct bids, which had formed 14.8% of accepted bids in the previous week, fell to 8.2%. Direct bidders include domestic money managers such as State Street Corp. (STT) and BlackRock (BLK).

Due to high market demand, the share of primary dealer bids fell to 48.8% from 66.4% in the previous week. 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 Goldman, Sachs and Co. (GS) and Citigroup Global Markets (C). A fall in the percentage of primary dealer bids shows a rise in fundamental market demand.


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