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What Went Down at Last Week’s 26-Week Treasury Bill Auction

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26-week Treasury bill auction

The US Department of the Treasury held its weekly 26-week Treasury bill (or T-bill) auction on May 2. T-bills worth $24 billion were on offer—the same as in the previous week’s auction.

The bid-to-cover ratio rose 3.5% from the previous week to 3.9x in the May 2 auction. In 2016 so far, the bid-to-cover ratio averaged 3.7x.

Mutual funds (or MFs) like the PIMCO GNMA Fund – Class A (PAGNX) and the Prudential Government Income Fund – Class A (PGVAX) offer exposure to T-bills. Exchange-traded funds like the iShares Short Treasury Bond Fund (SHV) also help investors get exposure to three-month T-bills.

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Yield analysis

Treasury bills don’t pay a coupon. They’re offered at a discount to face value and redeemable at par on maturity. The high discount rate for the May 2 auction was marginally lower. It came in at 0.395% versus 0.4% in the previous week.

Market demand rose

Fundamental market demand rose from last week. Demand rose week-over-week to 49.0% of competitive accepted bids from 46.5% in the previous week.

Accepted indirect bids nudged up to 45.7% week-over-week from 44.8% in the previous week. Meanwhile, the percentage of direct bids rose to 3.2% week-over-week from 1.7% a week ago. Direct bids include bids from domestic money managers—for example, Invesco (IVZ) and Wells Fargo (WFC).

Due to a slight rise in market demand, the share of primary dealer bids fell to 51.0% of the auction from 53.5% in the previous week. Primary dealers are a group of 22 authorized broker-dealers. They’re obligated to bid at US Treasury auctions and take up excess supply. They include firms like Goldman, Sachs and Co. (GS) and Citigroup Global Markets (C).

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