26-week Treasury bills auction
The US Department of the Treasury held the weekly auction of 26-week Treasury bills (or T-bills) on April 25. T-bills worth $24 billion were on offer, which was 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 fell to 3.8x last week, compared to 3.9x in the previous week. The bid-to-cover ratio averaged 3.7x so far in 2016.
Treasury bills don’t pay a coupon. They are offered at a discount to face value and are redeemable at par on maturity. The high discount rate for the April 25 auction came in at 0.4%, higher than 0.35% in the previous week.
Market demand fell
Fundamental market demand fell last week to 46.5% from 48.7% a week ago due to a rise in the percentage share of indirect bidders. Indirect bids were up from 42.7% to 44.8% week-over-week. Indirect bidders include foreign central banks. The percentage of direct bids tanked from 6.0% to 1.7% week-over-week. Direct bids include domestic money managers like Invesco (IVZ).
Consequently, the share of primary dealer bids rose from 51.3% to 53.5% in the week. A rise in the percentage of primary dealer bids is a sign of weak fundamental market demand. Primary dealers are a group of 22 authorized broker-dealers. They are obligated to bid at US Treasury auctions and take up excess supply. They include firms like Goldman Sachs (GS) and Citigroup Global Markets (C).