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4-week T-Bill auction has stronger demand despite higher issuance

Phalguni Soni

Must-know: Weekly Treasuries update—impact of FOMC minutes (Part 7 of 8)

(Continued from Part 6)

Stronger demand in one-month T-Bill auction held on July 8

The U.S. Treasury issued one-month Treasury bills (or T-Bills) amounting to $35 billion in the weekly auction held on July 8. This was the highest issuance in five weeks. Despite the higher amount, demand for the bills strengthened, with the bid-to-cover ratio coming in at 4.27x, compared to 4.19x for the auction held the previous week. The ratio has averaged 4.49x 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 ~80% from ~68% in the previous week’s auction. The percentage of direct bids was almost flat at ~10% of competitive bids on a week-to-week basis. The percentage of indirect bids declined to ~10% from ~21%, compared to the July 1 auction.

Yields analysis

The high discount rate for the July 8 auction was slightly lower at 0.02%, compared to 0.025% in the July 1 auction. The discount rate has averaged 0.04% and 0.025% for 1Q14 and 2Q14, respectively.

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.

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

Continue to Part 8

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