uploads///Weekly T Bill Issuance and Bid Cover Ratio

Indirect Bidders Lost Interest in the 13-Week T-Bills Auction

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13-week Treasury bills auction

The U.S. Department of the Treasury auctioned 13-week Treasury bills, or T-bills, worth $28 billion on January 4, 2016. The offer amount was the same as the previous six auctions.

The overall auction demand fell by 2.2% in the week. The bid-to-cover ratio fell to 3.56x from 3.64x a week ago. The bid-to-cover ratio measures the overall demand for the auction.

Mutual funds like the MassMutual Select Strategic Bond Fund – Class A (MSBAX) and the MFS Government Securities Fund – Class A (MFGSX) have exposure to T-bills.

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Yield analysis

T-bills don’t pay a coupon. They’re offered at a discount to face value. They’re redeemable at par on maturity. The high discount rate for the January 4 auction came in at 0.22%. It was lower than 0.26% in the previous week.

Market demand fell

Market demand for 13-week T-bills fell to 30.4% from 40.2% in the previous week. The percentage of indirect bids fell to 18.7% of the accepted bids from 32.9% a week ago. Indirect bids show the demand from foreign governments.

Direct bids rose. They formed 7.3% of the accepted bids in the previous week. Direct bids rose to 11.8%. Direct bidders include domestic money managers—for example, State Street (STT) and Invesco (IVZ).

Due to a fall in the overall market demand, the share of primary dealer bids rose to 69.6% from 59.8% 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 firms like Goldman Sachs (GS) and Citigroup (C). A rise in the percentage of primary dealer bids shows weak fundamental market demand.

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