Market demand fell for 6-month Treasury bills
Why the Eurozone stimulus drove US Treasuries (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 January 20. T-bills worth $24 billion were on offer. The quantum hasn’t changed for five consecutive weeks.
The bid-to-cover ratio fell ~1%. It posted a 7.7% fall in the previous week. It was 4.2x. This reading was lower than the 4.6x average bid-to-cover ratio 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 January 20 auction came in at 0.075%. It was lower than the 0.085% rate the previous week.
Market demand falls
Fundamental market demand fell in the week. The percentage of indirect bids fell from 46.1% to 32.6% week-over-week. In contrast, direct bids rose for the second week in a row. They rose from 7.3% to 8.1% week-over-week. Direct bids include domestic money managers—for example, Invesco (IVZ).
As a result, the share of primary dealer bids rose from 46.6% to 59.3% in the week. A rise in the percentage of primary dealer bids is a sign of weak fundamental market demand.
Primary dealers are a group of 22 authorized broker dealers. They’re obligated to bid at US Treasury auctions and take up excess supply. They include firms like Goldman, Sachs & Co. (GS) and Citigroup (C). GS and C are part of the SPDR S&P 500 ETF (SPY) and the SPDR Financial Select Sector ETF (XLF).
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