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

Bid-to-Cover Ratio Surged for 26-Week Treasury Bills Auction


Mar. 8 2016, Updated 9:06 a.m. ET

26-week Treasury bills auction

The U.S. Department of the Treasury held its weekly auction of 26-week Treasury bills (or T-bills) on February 22, 2016. T-bills worth $30 billion were on offer, unchanged for the fourth successive week.

The bid-to-cover ratio measures the overall demand for the auction. The higher the ratio, the higher the demand, and vice-versa. The bid-to-cover ratio rose to 3.8x last week compared to 3.4x in the previous week. In 2015, the bid-to-cover ratio averaged 4.0x.

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Yield analysis

Treasury 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 February 22 auction came in at 0.42%, higher than 0.37% in the previous week.

Market demand rose sharply

Fundamental market demand rose sharply last week, from 41.0% the week before to 68.3%. This was due to a rise in the percentage share of indirect bidders. Indirect bids rose from 34.9% to 60.0% week-over-week. Indirect bidders include foreign central banks. The percentage of direct bids fell from 6.1% to 3.9% week-over-week. Direct bids include domestic money managers such as Invesco (IVZ) and State Street (STT).

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Consequently, the share of primary dealer bids fell from 59.0% to 36.2% in the week. A fall in the percentage of primary dealer bids is a sign of strong fundamental market demand. Primary dealers are a group of 22 authorized broker-dealers. They’re obligated to bid at U.S. Treasury auctions and take up excess supply. They include firms such as Goldman Sachs (GS) and Citigroup (C).

Investment impact

Mutual funds such as the Oppenheimer Limited-Term Government Fund – Class A (OPGVX) and the Prudential Government Income Fund – Class A (PGVAX) invest in T-bills.

OPGVX was almost flat last week, while PGVAX fell by 0.1%.


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