Direct Bidders Shun the Four-Week Treasury Bills Auction
Long-Term Treasury Bonds Rally amid Rate Hike Speculation
Four-week Treasury bills auction
The US Department of the Treasury conducted the weekly auction for four-week Treasury bills (or T-bills) on August 4. The issuance was $40 billion, the same as in the previous three weeks.
The bid-to-cover ratio for these bills, which depicts overall demand, rose 4.3% from the previous week to 3.6x. Coverage at the one-month T-bills auction has averaged 3.8x so far in 2015, down from 4.4x for all the auctions held in 2014. The high discount rate for the August 4 auction came in at 0.05%, the same as in the previous week.
Market demand nosedives
Market demand for the four-week Treasury bills nosedived from the previous week. The percentage of indirect bids fell marginally from 25.4% to 24.0% week-over-week. Indirect bidders include foreign central banks.
Domestic investors’ interest in the auction was down from the previous week. The percentage of direct bids fell to 2.7% from 7.2% week-over-week. Direct bidders include domestic money managers like BlackRock (BLK) and Wells Fargo (WFC).
The share of primary dealer bids rose to 73.3% from 67.4% in the previous week. Primary dealers are a group of 22 broker-dealers authorized by the Fed. They’re obligated to bid at US Treasury auctions and take up the excess supply. They include firms like JPMorgan Chase (JPM) and Morgan Stanley (MS). The rise in the share of primary dealers indicates a weak fundamental demand for the auction.
Investment impact
Mutual funds like the Vanguard GNMA Fund Investor Shares (VFIIX) and the American Funds US Government Sec A (AMUSX) invest in T-bills. The VFIIX provided a week-over-week return of 0.04%, while the weekly return of the AMUSX came in negative at -0.28%.
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