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Fundamental Market Demand Fell for 13-Week Treasury Bills Auction

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13-week Treasury bills auction

The US Treasury Department auctioned 13-week Treasury bills (or T-bills) worth $28 billion on April 4. The offer amount was $3 billion lower than the previous week.

Overall auction demand rose by 4.2% in the week with the bid-to-cover ratio rising to 4.0x from 3.8x 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 April 4 auction was 0.24%, lower than 0.30% in the previous week.

Market demand fell

Market demand for the 13-week Treasury bills fell to 40.0% from 49.5% in the previous week. The percentage of indirect bids fell to 33.1% of the accepted bids from 41.6% a week ago. Indirect bids depict demand from foreign governments.

Direct bids nudged down. These bids, which had formed 7.9% of accepted bids in the previous week, fell to 6.9%. Direct bidders include domestic money managers like State Street (STT) and Invesco (IVZ).

Due to a fall in overall market demand, the share of primary dealer bids rose to 60.0% from 50.5% 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 Global Markets (C). A rise in the percentage of primary dealer bids shows weak fundamental market demand.

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