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Overall Demand Jumped for 52-Week Treasury Bills Auction

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52-week Treasury bills auction

The US Treasury auctioned $20 billion worth of 52-week Treasury bills (or T-bills) on April 26, 2016. T-bills mature in a 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

  • The auction was held on April 26, 2016.
  • The auction size was set at $20 billion, the same as the previous auction’s amount.
  • The issue’s high discount rate was lower at 0.61% compared to 0.66% in the previous auction.

Overall demand jumped

The bid-to-cover ratio jumped 13.7% to 3.6x month-over-month. The ratio has averaged 3.5x so far in 2016. The bid-to-cover ratio measures the overall demand for the auction. The higher the ratio, the higher the overall demand for the auction and vice versa.

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Market demand rose

Market demand for the 52-week Treasury bills rose from a month ago. Demand went up to 46.9% of competitive accepted bids in April from 38.1% in the previous auction.

The indirect bidders’ category includes bids from overseas governments. Allotment to this category rose to 44.4% in April from 32.2% in March. Direct bids include bids from domestic money managers like Invesco (IVZ) and Wells Fargo (WFC). The percentage of direct bidder allotment fell to 2.5% in April from 5.8% in the previous auction.

Due to higher market demand, primary dealer bids fell to 53.1% in April from 61.9% in the previous auction. Primary dealers include companies like Credit Suisse (CS) and Goldman Sachs (GS).

Investment impact

Mutual funds like 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 both were up by 0.4% last week.

Meanwhile, the iShares 1-3 Years Treasury Bond Fund (SHY), which has holdings in three-year Treasury notes, was up by 0.1% week-over-week.

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