Treasury Bills Are In Demand at Auction on Thursday

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Treasury bills garnered considerable attention on Thursday as investors bid up four- and eight-week securities as they were auctioned.

Both auctions were “extremely aggressively bid,” according to a research note by Jefferies.

Andrew Brenner, head of international fixed income at NatAlliance Securities, said he didn’t think the demand for the securities had anything to do with their yields.

Brenner surmised institutional investors, including banks, wanted “to show Treasury bills on their balance sheet for year end, and there’s no easier way to do that than buying four-week bills and eight-week bills.”

Another probable buyer was money market funds.

The Federal Open Market Committee is set to gather on Dec. 13 and 14 to weigh another increase in short-term interest rates. The market is anticipating a rate increase of 50 basis points, lower than the previous four hikes that came in at 75 basis points.

Thomas Simons and Aneta Markowska of Jefferies observed in their note that they weren’t exactly sure why the T-bill auction was so heavily subscribed.

“It is hard to see why investors are so aggressive at already rich levels, unless they are concerned about more supply cuts coming due to the debt ceiling,” they wrote. Another possibility is that investors want to get ahead of the FOMC before it releases its latest economic projections revisions.

The four-week Treasury bill, for example, ended up rallying from an early phase Thursday known as “when issued.” In other words, that security became more expensive “than where it was trading in the when-issued market before they were priced,” said Brenner.

The yield was initially at around 3.745% but it then went lower to around 3.555% as investors bid up the price, according to Simons.

Write to Lawrence C. Strauss at [email protected]