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

Bid-to-Cover Ratio Rose for the 52-Week Treasury Bills Auction

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Jan. 11 2016, Updated 1:08 p.m. ET

52-week Treasury bills auction

The U.S. Department of the Treasury auctioned $16 billion worth of 52-week Treasury bills, or T-bills, on January 5, 2016. T-bills mature in a year or less. They’re at the very short end of the yield curve. Other Treasury securities like Treasury notes, or T-notes, and Treasury bonds, or T-bonds, are issued for longer maturities.

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Key takeaways

  • The auction was held on January 5.
  • The auction size was set at $16 billion—$2 billion higher than December’s auction.
  • The issue’s high discount rate was lower at 0.67%—compared to 0.74% in the previous auction.

Overall demand rose

The bid-to-cover ratio rose by 10.3% to 3.95x month-over-month. In 2015, the ratio averaged 3.8x. The ratio averaged 4.2x in the auctions held in 2014.

The bid-to-cover ratio measures the overall demand for the auction. The higher the ratio, the higher the overall demand for the auction and vice versa.

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Market demand fell

Market demand for 52-week T-bills fell from a month ago. The demand fell to 31.4% of the competitive accepted bids in January—from 39.7% in the previous auction.

The indirect bidders category includes bids from overseas governments. The allotment to this category fell to 27.0% in January from 33.2% in December. Direct bids include bids from domestic money managers like Invesco (IVZ) and Wells Fargo (WFC). The percentage of direct bidder allotments fell to 4.4% in January from 6.6% in the December auction.

Due to lower market demand, primary dealer bids were higher at 68.6% in January—compared to 60.3% in the previous auction. Primary dealers include companies like Credit Suisse (CS) and Goldman Sachs (GS).

Investment Impact

Mutual funds like the Prudential Government Income Fund – Class A (PGVAX) and the J Hancock Government Income Fund – Class A (JHGIX) have exposure to T-bills.

PGVAX rose by 0.76% while JHGIX rose by 0.58% last week compared to a week ago.

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