| Actual | Previous | |
|---|---|---|
| Total Amount | $55.000B | $55.000B |
| Bid/Cover | 2.78 | 3.32 |
| 8-Week Bill Rate | 4.180% | 4.195% |
| CUSIP Number | 912797PG6 | 912797PF8 |
Highlights
The Treasury 6-week bill comes in with a lower midrange 2.78 bid-cover ratio, not an impressive showing and well down from a very strong 3.32 last week. The high is awarded at 4.180 percent versus 4.195 percent last week and 4.225 percent two weeks ago. The offering size is flat at $55 billion from last week but well down from the $70 billion auctioned on May 20 as the Treasury continues to issue fewer bills in the face of the looming debt ceiling.
Treasury officials and Congressional Budget Office estimates say that without an increase in the debt ceiling, the federal government will run out of cash to pay its debt service sometime in August or September. The president's One Big Beautiful Bill Act approved by the House and now under consideration by the Senate contains a $4 trillion increase in the debt ceiling. Investors are watching its progress closely, in part as it bears on the prospect of an actual US default.
The 6-week bill auctioned today matures on July 31, which puts it just inside the window of debt issuance not subject to default risk. It will be interesting to see how the market receives the 8-week bill and 4-month bill auctions on Wednesday.
Treasury officials and Congressional Budget Office estimates say that without an increase in the debt ceiling, the federal government will run out of cash to pay its debt service sometime in August or September. The president's One Big Beautiful Bill Act approved by the House and now under consideration by the Senate contains a $4 trillion increase in the debt ceiling. Investors are watching its progress closely, in part as it bears on the prospect of an actual US default.
The 6-week bill auctioned today matures on July 31, which puts it just inside the window of debt issuance not subject to default risk. It will be interesting to see how the market receives the 8-week bill and 4-month bill auctions on Wednesday.
Definition
Treasury bills are sold at public auctions every week. Competitive bids at these auctions determine the interest rate paid on each issue. A group of securities dealers, known as primary dealers, are authorized and obligated to submit competitive tenders at Treasury auctions. Dealers can hold the bills, resell the bills to their clients or trade them with other securities firms. Typically, the New York Fed approves about 20 securities firms to be primary dealers but that number dropped sharply during the 2008 financial crisis as some were merged into other firms or went bankrupt. The Fed has been rebuilding that number regularly and the latest list can be found here. Since these are public auctions, the Treasury must announce the size, date and time of the auction every week. From December 4, 2018 onward, the 8-week and the 4-week bill will be announced on Tuesdays, auctioned on Thursdays, and settled on the Tuesday of the following week. Each 4-week bill will be reopening of an existing 8-week bill. (Department of the Treasury)
Description
Individual investors can participate in Treasury auctions either through a securities dealer (brokerage firm) or via the Treasury Direct program, which saves on brokerage commissions. But brokers’ commissions are often nominal (especially with discount brokers), and using a broker does eliminate a lot of paper work and other administrative hassles. Brokers facilitate the purchases and sales of Treasuries in the secondary market, which is handy for buying Treasuries at times other than scheduled auctions or for maturities other than those offered by standard new issues.
Interest rates on Treasury securities are determined in the market; the Federal Reserve does not set them. However, bond investors are sensitive to Federal Reserve policy and thus market rates will mirror policy expectations. Usually, bond market players are forward-looking and this means that interest rates on Treasury securities will move in the direction of Fed policy with a lead. As a result, one is more likely to see rising interest rates on Treasury yields during an expansion (and falling yields during economic slowdowns) in advance of policy changes by the Federal Reserve.
Primer on Treasuries
Treasury securities, Treasuries, U.S. government bonds, T-bonds, T-notes, and T-bills all refer to the same type of security: debt obligations of the United States. Maturity refers to the length of the loan to the government. Treasury bills have maturities from four weeks to 52 weeks. Cash management bills (CMBs) are auctioned occasionally, depending on the Treasury's borrowing needs. These are often for short-term needs such as 12 to 14 days. Since 2008, the Treasury ruled that all securities it issues now have minimum denominations of $100 and must be purchased in increments of $100.
How bills work
Since they mature so quickly, bills are simply sold at a discount to their face value at maturity. The interest is the difference between the purchase price of the security and what the Treasury pays at maturity. For example, if you bought a 3-month bill for $9,800 and received $10,000 at maturity, the interest payment would be $200.
Investment Profile
Treasuries offer a measure of security unmatched by other investments - the U.S. government guarantees the initial investment (the principal) and interest payments. When Treasuries are resold in the secondary market, their prices are often significantly different than their face value since prices in the secondary market fluctuate based on the economic environment, inflation expectations, Federal Reserve policy, and simple forces of supply and demand.
Interest rates on Treasury securities are determined in the market; the Federal Reserve does not set them. However, bond investors are sensitive to Federal Reserve policy and thus market rates will mirror policy expectations. Usually, bond market players are forward-looking and this means that interest rates on Treasury securities will move in the direction of Fed policy with a lead. As a result, one is more likely to see rising interest rates on Treasury yields during an expansion (and falling yields during economic slowdowns) in advance of policy changes by the Federal Reserve.
Primer on Treasuries
Treasury securities, Treasuries, U.S. government bonds, T-bonds, T-notes, and T-bills all refer to the same type of security: debt obligations of the United States. Maturity refers to the length of the loan to the government. Treasury bills have maturities from four weeks to 52 weeks. Cash management bills (CMBs) are auctioned occasionally, depending on the Treasury's borrowing needs. These are often for short-term needs such as 12 to 14 days. Since 2008, the Treasury ruled that all securities it issues now have minimum denominations of $100 and must be purchased in increments of $100.
How bills work
Since they mature so quickly, bills are simply sold at a discount to their face value at maturity. The interest is the difference between the purchase price of the security and what the Treasury pays at maturity. For example, if you bought a 3-month bill for $9,800 and received $10,000 at maturity, the interest payment would be $200.
Investment Profile
Treasuries offer a measure of security unmatched by other investments - the U.S. government guarantees the initial investment (the principal) and interest payments. When Treasuries are resold in the secondary market, their prices are often significantly different than their face value since prices in the secondary market fluctuate based on the economic environment, inflation expectations, Federal Reserve policy, and simple forces of supply and demand.
