Indirect Bidders Lost Interest in the 13-Week Treasury Bills Auction
Demand for Safe-Haven Treasuries Rose amid Terrorist Attacks in Paris
13-week T-bills auction
The US Department of the Treasury auctioned 13-week Treasury bills, or T-bills, worth $30 billion on November 9. The offer amount was $2 billion higher than the previous auction.
The overall auction demand fell by 10.3% during the week. The bid-to-cover ratio fell to 3.3x from 3.7x a week ago. The bid-to-cover ratio measures the overall demand for the auction.
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.
Yield analysis
T-bills don’t pay a coupon. They’re offered at a discount to face value. They’re redeemable at par on maturity. The high discount rate for the November 9 auction came in at 0.14%—higher than 0.11% in the previous week. The high discount rate is the highest recorded, so far, in 2015.
Market demand tanks
The market demand for 13-week T-bills fell to 22.1% from 67.3% in the previous week. The percentage of indirect bids fell to 8.3% of the accepted bids from 65.2% a week ago. Indirect bids show the demand from foreign governments.
Direct bids rose. These bids formed 2.1% of the accepted bids in the previous week. They rose to 13.9%. Direct bidders include domestic money managers—for example, State Street (STT).
Due to a fall in the overall market demand, the share of primary dealer bids rose to 77.9% from 32.7% 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 Goldman Sachs (GS) and Citigroup (C). A rise in the percentage of primary dealer bids shows weak fundamental market demand.
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