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

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


Apr. 26 2016, Published 11:14 a.m. ET

13-week T-bills auction

The U.S. Department of the Treasury conducted the weekly auction for 13-week Treasury bills, or T-bills, on April 18. The issuance was worth $28 billion—the same as the previous week.

The overall auction demand, as represented by the bid-to-cover ratio, rose by 2.8%—compared to a week ago. The bid-to-cover ratio rose from 3.9x a week ago to 4.0x on April 18—the highest year-to-date. So far, the bid-to-cover ratio has averaged 3.5x in 2016.

Mutual funds, like the Oppenheimer Limited-Term Government Fund – Class A (OPGVX) and the J Hancock Government Income Fund – Class A (JHGIX), provide 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 was slightly down for the April 18 auction. It came in at 0.22%—compared to 0.23% a week ago.

Market demand fell

Market demand fell for 13-week T-bills from 48.7% the previous week to 41.2% last week. The share of indirect bids fell to 31.7% of the accepted bids from 40.4% a week ago. Indirect bids depict the demand from foreign central banks.

Direct bids formed 8.3% of accepted bids in the previous week. They rose to 9.6%. Direct bidders include domestic money managers—for example, State Street (STT) and BlackRock (BLK).

Due to low market demand, the share of primary dealer bids rose to 58.8% from 51.3% 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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