Safe-Haven Treasuries See High Demand as Oil Prices Keep Tanking
The four-week Treasury bills auction on January 12
The US Treasury Department conducted the weekly auction for four-week Treasury bills, or T-bills, on January 12. The issuance was $45 billion—the same amount we saw the week before.
The bid-to-cover ratio of these bills, which depicts overall demand, fell by 2.6% from the previous week to 3.35x. Coverage of the one-month T-bills auction averaged 4.2x in 2015. The high discount rate for the January 12 auction came in at 0.22%, which was slightly higher than the 0.2% we saw the previous week.
Market demand for four-week T-bills rocketed
Market demand for four-week T-bills surged last week to 37.1% from 25.6% in the previous week. The percentage of indirect bids rose to 28.8% from 22.4% a week ago. Indirect bidders include foreign central banks.
Domestic investors’ interest in the auction also rose during the week ending January 15. The percentage of direct bids rose to 8.22% from 3.2% week-over-week. Direct bidders include domestic money managers like BlackRock (BLK) and Wells Fargo & Company (WFC).
By contrast, the share of primary dealers fell to 62.9% from 74.4% during 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 JP Morgan & Chase (JPM) and Morgan Stanley (MS).
Reading the investment impact
Mutual funds like the Vanguard GNMA Fund Investor Shares Fund (VFIIX) and the MFS Government Securities Fund Class A (MFGSX) have exposure to T-bills. The weekly returns of VFIIX were up by 0.12% while MFGSX’s week-over-week returns were up by 0.34%.
For more analysis on mutual funds, please visit Market Realist’s Mutual Funds page.
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