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

Direct Bidders Lose Interest in the 26-Week Treasury Bills Auction


May. 2 2016, Published 2:47 p.m. ET

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.

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Yield analysis

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).

Investment impact

Funds such as the iShares Short Treasury Bond Fund (SHV), the Oppenheimer Limited-Term Government Fund – Class A (OPGVX), and the Prudential Government Income Fund – Class A (PGVAX) invest in T-bills. The SHV was flat last week while the OPGVX and the PGVAX were up by 0.2% and 0.4%, week-over-week.


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