Overall and Fundamental Market Demand Rose at the 26-Week Treasury Bills Auction on January 11



Checking in with the latest 26-week Treasury bills auction

The US Department of the Treasury held the weekly 26-week Treasury bills, or T-bills, auction on January 11. T-bills worth $26 billion were on offer—the same as we saw offered in the previous auction. The bid-to-cover ratio rose by 5.8% from the previous week to 4.2x on January 11. By comparison, in 2015, the bid-to-cover ratio averaged 4.0x.

Mutual funds like the PIMCO GNMA Fund Class A (PAGNX) and the Prudential Government Income Fund Class A (PGVAX) provide exposure to T-bills.

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Yield analysis and rising market demand

T-bills don’t pay a coupon. They’re offered at a discount to face value and are redeemable at par on maturity. The high discount rate for the January 11 auction jumped, coming in at 0.47%, which was lower than the 0.50% we saw last week.

Meanwhile, fundamental market demand rose marginally from 49.6% in the previous week to 52.0% last week. Accepted indirect bids nudged up to 43.3% on a week-over-week basis from 42.9% the previous week.

By contrast, the percentage of direct bids fell to 8.7% week-over-week from 6.8% a week ago. Direct bids include bids from domestic money managers like Invesco Mortgage Capital (IVZ) and Wells Fargo & Company (WFC).

Bids for 26-week Treasury bills

Due to the rise in market demand, the share of primary dealer bids fell to 48.1% of the auction from 50.4% in the previous week. Primary dealers are a group of 22 authorized broker-dealers. They’re obligated to bid at US Treasury auctions and take up excess supply and include firms like Goldman Sachs Group (GS) and Citigroup (C).

Now let’s look at what happened to 13-week Treasury bills at the January 11 auction.


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