26-week Treasury bill auction
The US Department of the Treasury’s 26-week Treasury bill, or T-bill, auction, totaled $26 billion last week. The bid-to-cover ratio fell slightly to 3.6x from 3.7x in the previous week. The bid-to-cover ratio depicts overall demand for the auction. Direct bids, bids from domestic money managers such as Invesco (IVZ) and Wells Fargo & Company (WFC), and indirect bids from foreign governments tanked for 26-week Treasury bills. As a result, the share of primary dealers such as JPMorgan Chase (JPM) and Morgan Stanley (MS) jumped. They are obligated to bid at US Treasury auctions and take up the excess supply.
Mutual funds like the MassMutual Select Strategic Bond Fund Class A (MSBAX) and the MFS Government Securities Fund Class A (MFGSX) have exposure to T-bills. ETFs such as the iShares Short Treasury Bond ETF (SHV) also give investors exposure to T-bills.
13-week Treasury bill auction
On May 31, 2016, 13-week Treasury bills worth $31 billion were auctioned. The bid-to-cover ratio fell 1.5% from the previous week’s auction and came in at 3.4x. The bid-to-cover ratio depicts overall demand for the auction. Meanwhile, fundamental demand (demand for direct and indirect bidders) also fell.
Four-week Treasury bill auction
The weekly four-week Treasury bill auction was held on May 31. The bid-to-cover ratio plunged 11.3% as compared to the previous auction and came in at 3.1x, which is the lowest ratio year-to-date. Direct bidders’ interest jumped for the four-week Treasury bills, while that of indirect bidders fell.
Why was demand for T-bills weak?
The poor non-farm payroll report has diminished the likelihood of rate hike in June’s policy meeting. Thus, investors lost interest in short-term T-bills as their yields are more closely influenced by the federal funds rate.
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