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3-month Treasury bill auction bid-to-cover ratio increases

Phalguni Soni

Must-know: Weekly Treasuries update—impact of FOMC minutes (Part 6 of 8)

(Continued from Part 5)

Bid-to-cover ratios increases in the three-month T-Bill auction held on July 7

In this section, we’ll discuss the highlights from the three-month, or 13-week, T-Bill auction held on July 7.

The U.S. Treasury auctioned three-month T-Bills amounting to $25 billion in the weekly auction held on July 7. Demand for the bills strengthened, with the bid-to-cover ratio coming in at 4.62x, compared to 4.10x for the auction held the previous week. The ratio has averaged 4.61x for auctions held in 2014.

The bid-to-cover ratio is computed as the total value of bids received divided by the value of securities on offer. The higher the ratio, the higher the demand for the securities on auction.

Bidder demand

The share of primary dealer bids in the July 7 auction increased to ~78%, compared to ~71% in the previous week’s auction. Similar to the six-month auction, the percentage of direct bids increased from ~3% to ~8% of competitive bids on a week-to-week basis. The percentage of indirect bids declined to ~15% from ~26%, compared to the June 30 auction.

Yields analysis

The high discount rate for the July 7 auction was slightly lower at 0.03%, compared to 0.04% in the June 30 auction. The discount rate has averaged 0.05% and 0.03% for 1Q14 and 2Q14, respectively.

A more detailed analysis of the key takeaways from last week’s Treasury auctions is provided in Part 8 of this series.

Exchange-traded funds (or ETFs) investing primarily in T-Bills included the SPDR Barclays 1–3 Month T-Bill ETF (BIL), the iShares Short Treasury Bond Fund (SHV), and the PIMCO Enhanced Short Maturity Strategy Fund (MINT). Others like the iShares 10–20 Year Treasury Bond (TLH) and the iShares Barclays 20+ Year Treasury Bond Fund (TLT), invest in long-term Treasuries.

Four-week T-Bill auction held on July 8

In the next section, we’ll analyze the key takeaways from last week’s four-week Treasury auction. Please continue reading the next sections in this series.

Continue to Part 7

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