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

Inside the Rising Demand for 52-week Treasury Bills in March

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Apr. 5 2016, Updated 8:08 a.m. ET

52-week Treasury bills on March 29

The US Treasury auctioned $20 billion worth of 52-week Treasury bills, or T-bills, on March 29, 2016. T-bills mature in one year or less. They are at the very short end of the yield curve. Other Treasury securities like Treasury notes, or T-notes, and Treasury bonds, or T-bonds, are issued for longer maturities.

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Key takeaways and overall demand

The 52-week T-bill auction was held on March 29. The auction size was set at $20 billion—the same as in the previous auction—and the issue’s high discount rate at the auction remained unchanged at 0.66%. But compared to the previous auction, the bid-to-cover ratio fell by 4.6% to 3.1x.

In 2015, the bid-to-cover ratio for these T-bills averaged 3.8x. Please note that the bid-to-cover ratio measures overall demand at the auction. The higher the ratio, the higher the overall demand for the auction, and vice-versa.

Market demand

On March 29, market demand for 52-week T-bills rose from the previous auction, reaching 38.1% of competitive accepted bids as compared to 32.2% in the previous auction.

The indirect bidders’ category includes bids from overseas governments. Allotment to this category rose to 32.2% on March 29 as compared to 26.7% on March 1. Direct bids, which include bids from domestic money managers like Invesco (IVZ) and Wells Fargo & Company (WFC), nudged up to 5.8% as compared to 5.5% in the previous auction.

Due to slightly higher market demand, primary dealer bids were down on March 29, dipping to 61.9% as compared to 67.8% in the previous auction. Primary dealers include companies like Credit Suisse (CS) and Goldman Sachs Group (GS).

Investment impact

We should note here that some mutual funds, such as the Prudential Government Income Fund Class A (PGVAX) and the J Hancock Government Income Fund Class A (JHGIX), have exposure to T-bills. PGVAX and JHGIX were up by 0.7% and 0.5%, respectively, in the final week of March.

In the next part, we’ll discuss the latest 26-week T-bill auction.

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