Treasury Bill Auction Shows Demand Damped by U.S. ShutdownDaniel Kruger and Liz Capo McCormick
Bidding at the U.S. Treasury’s auction of $35 billion in three-month bills showed this month’s partial government shutdown remains on the minds of investors even after a last-minute agreement removed the risk of default.
Investors submitted bids totaling 4.03 times the amount of securities offered, up from 3.13 times at the Oct. 15 offering, yet below the average bid-to-cover ratio of 4.64 at the 40 bill sales this year before the Oct. 1 shutdown, Treasury data compiled by Bloomberg show.
“Even as people feel more confident about the front end, we are still fielding questions from clients regarding what maturities they should stay away from for the next debt ceiling issue,” said Kenneth Silliman, head of U.S. short-term rates trading at Toronto-Dominion Bank’s TD Securities unit in New York. “Having just avoided this bullet, they want to preemptively avoid the next one.”
The bills were sold at a discount rate of 0.035 percent, down from 0.13 percent at the Oct. 15 offering, which was the highest since February 2011. The Treasury also sold $30 billion of six-month bills at a rate of 0.07 percent compared with 0.15 percent at the Oct. 15 offering. Last week’s rate was the most since October 2012.
The three-month bills mature Jan. 23 in a period that may coincide with another round of political wrangling. The deal to avert default and end the shutdown funds the government at Republican-backed spending levels through Jan. 15, 2014, and suspends the debt limit through Feb. 7.
Rates on one-month Treasury bills surged to a six-year high of 0.45 percent on Oct. 16 as investors dumped the shortest maturity U.S. government debt on concern principle and interest payments would be delayed or defaulted on if a budget agreement wasn’t reached.
Demand for the three-months bills sold today from indirect bidders, a group which includes foreign central banks, fell to 8.5 percent, the lowest since July 22, and compares with an average of about 18 percent at the 40 pre-shutdown offerings this year.
“That is probably indicative of the fact there’s some reticence to being invested in the front end at that point,” said Thomas Simons, a government-debt economist in New York at Jefferies LLC, one of the 21 primary dealers that are obligated to bid U.S. debt sales. “People are just so averse, they don’t want the headache of anything that matures around then.”