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

Why Fundamental Demand Fell for the 4-Week T-Bills Auction

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Apr. 22 2016, Updated 11:06 a.m. ET

Four-week T-bills auction

The U.S. Department of the Treasury conducted the weekly auction for four-week Treasury bills, or T-bills, on April 12. The issuance was $35 billion—the same as the previous week’s auction.

The bid-to-cover ratio of these bills shows the overall demand. It rose marginally by 0.6% from the previous week to 3.6x. Coverage of the one-month T-bills auction averaged 4.2x in 2015.

The high discount rate for the April 12 auction came in at 0.2%—higher than 0.19% in the previous week.

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Market demand fell

Market demand for four-week T-bills fell last week to 29.1%—the lowest since the January 20 auction. It fell from 41.6% in the previous week. The fundamental demand also fell. The demand for safe-haven T-bills declined due to the rally in the stock market after a rise in oil prices.

The percentage of indirect bids fell to 24.3% from 36.3% a week ago. Indirect bidders include foreign central banks.

Domestic investors’ interest in the auction also fell last week. The percentage of direct bids fell to 4.8% from 5.3% week-over-week. Direct bidders include domestic money managers—for example, BlackRock (BLK) and Wells Fargo (WFC).

The share of primary dealers rose to 70.9% from 58.4% 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 JPMorgan Chase (JPM) and Morgan Stanley (MS).

Investment impact

Mutual funds like the Vanguard GNMA Fund Investor Shares Fund (VFIIX) and the MFS Government Securities Fund – Class A (MFGSX) have exposure to T-bills. Last week, VFIIX rose by 0.1%. MFGSX fell by 0.1%.

For more analysis on mutual funds, visit Market Realist’s Mutual Funds page.

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