Econoday Report: 6-Month Bill Auction 25, 2008

2008 U.S. Economic Events & Analysis

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6-Month Bill Auction

Definition
Treasury bills are sold at public auctions every week. The 6-month bill is also known as the 26- week bill. Competitive bids at these auctions determine the interest rate paid on each issue. Twenty primary dealers (as of November 30, 2007) 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. Since these are public auctions, the Treasury must announce the size, date and time of the auction every week. Six-month bills are announced on Thursday for auction the following Monday and issued (settled) on Thursday. If a Monday is a banking holiday, the bills are auctioned on Tuesday. Why Investors Care

6-Month Bill Treasury Rate

1.925 %

Highlights
Demand definitely softened for the weekly 3- and 6-month bill auctions, a signal that ever-rising auction sizes may finally be diluting demand. The bid-to-cover ratio for the $28 billion 3-month auction was 2.46, down from 2.69 in the prior week and the lowest rate of the quarter. Bid-to-cover for the 6-month auction was much worse, at 2.06 and also the lowest of the quarter. Facing ever-increasing borrowing needs, the Treasury will auction $20 billion in 52-week bills tomorrow, up from $19 billion in the July auction. Auction sizes for notes are also up, at $32 billion in Wednesday's 2-year auction and $22 billion for Thursday's 5-year auction -- both $1 billion higher than prior auctions.

Trends

The 6-month bill rate is usually similar to the federal funds rate target; often when bond investors expect a rising rate environment, it is higher than the funds rate, but when investors expect rates to decline, it will be lower than the funds rate target. The 6-month bill rate depicted in this chart represents the high discount rate from the Treasury's weekly auction on Mondays. It only represents one moment in time, and is not an average of daily numbers. The date on the chart is associated with the issue (or settlement) date of the Treasury security, which is on the Thursday of the week that the security is auctioned. Our grid tables show the auction date of the security, which is usually on Mondays.

Data Source: Haver Analytics | Consensus Data Source: Market News International and Thomson Financial