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Direct Bidders Returned for 13-Week Treasury Bills Auction

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13-week Treasury bills auction

The U.S. Treasury Department conducted the weekly auction of 13-week Treasury bills (or T-bills) on January 19, 2016. The issuance was worth $31 billion, $3 billion higher than the previous week.

Overall auction demand as represented by the bid-to-cover ratio was down by 8.8% compared to a week ago. The bid-to-cover ratio fell from 3.74x a week ago to 3.41x on January 19.

Mutual funds such as the Oppenheimer Limited-Term Government Fund Class A (OPGVX) and the J Hancock Government Income Fund Class A (JHGIX) have 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 January 19 auction and came in at 0.26%, higher than the 0.22% rate a week ago.

Market demand rose

Market demand rose for 13-week Treasury bills from 34.9% in the previous week to 38.6% last week. The share of indirect bids fell to 22.9% of accepted bids from 27.7% a week ago. Indirect bids depict demand from foreign central banks.

Direct bids, which had formed 7.2% of accepted bids in the previous week, rose to 15.7%. Direct bidders include domestic money managers such as State Street (STT) and BlackRock (BLK).

Due to high market demand, the share of primary dealer bids fell to 61.4% last week from 65.1% 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 companies such as Goldman Sachs (GS) and Citigroup (C). A fall in the percentage of primary dealer bids shows a rise in fundamental market demand.

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