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Indirect Bidders Move from the 13-week Treasury Bills Auction

Treasuries Fall as the Fed's Lift-Off May Soon Turn into Reality

(Continued from Prior Part)

13-week Treasury bills auction

The United States Department of the Treasury auctioned 13-week Treasury bills (or T-bills) worth $28 billion on November 30. The auction amount on offer was the same as in the previous week. Overall auction demand, as represented by a bid-to-cover ratio, fell by 8.5% in the week. The bid-to-cover ratio fell to 3.4x compared to 3.7x a week ago.

Mutual funds such as the T. Rowe Price US Treasury Long-Term Fund (PRULX) and the Prudential Government Income Fund – Class A (PGVAX) help investors to take exposure in three-month T-bills.

Yield analysis

T-bills don’t pay a coupon. They are offered at a discount to face value and are redeemable at par on maturity. The high discount rate for the November 30 auction came in at around 0.22%, the highest since the January 2014 auction.

Market demand fell

Market demand for the three-month T-bills fell to 27.0% of the accepted bids last week, compared to 38.4% in the previous week.

The percentage of indirect bids fell to 19.9% from 32.9%. Direct bids rose from 5.5% of accepted bids in the previous week to 7.1% last week. Direct bids include domestic money managers like State Street (STT) and BlackRock (BLK).

The share of primary dealer bids rose from 61.6% in the previous week to 73.0%. Primary dealers are a group of 22 broker-dealers 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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