Lower market demand at the 6-month Treasury bills auction
Fed's statement moved Treasuries for the week ending December 19 (Part 7 of 9)
26-week T-bills auction
The US Department of the Treasury held the weekly 26-week, or six-month, Treasury bills (BIL) (MINT), or T-bills, auction on December 15. T-bills worth $26 billion were on offer. The quantum remained the same for the past three auctions. The auction demand was lower.
The bid-to-cover ratio fell by 9.3% to 3.8x week-over-week. This was the second consecutive fall in the ratio. It was even weaker than the ratio recorded in the weekly auctions held on November 10 and 17. The ratio averaged 4.7x for the auctions held in 2014.
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 December 15 auction came in at 0.110%. It was higher than the 0.090% rate a week ago.
Market demand falls
Fundamental demand fell marginally in last week’s auction. The percentage of indirect bids fell from 39.1% to ~37% week-over-week. However, direct bids were higher. They increased from 3.9% to 5.7% week-over-week. Direct bids include domestic money managers—for example, Invesco (IVZ).
The share of primary dealer bids increased from 56.9% to 57.4% in the week. A rise in the percentage of primary dealer bids is a sign of weaker fundamental market demand. Primary dealers are a group of 22 authorized broker dealers. They’re obligated to bid at US Treasury auctions and clean up excess supply. They include firms like Goldman, Sachs & Co. (GS) and Citigroup Global Markets (C). C and GS are part of the SPDR S&P 500 ETF (SPY) and the SPDR Financial Select Sector ETF (XLF).
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