Econoday Report: 4-Week Bill Auction 1, 2005

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2005 U.S. Economic Events & Analysis

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4-Week Bill Auction

Definition
Treasury bills are sold at public auctions every week. Competitive bids at these auctions determine the interest rate paid on each issue. Twenty-two primary dealers (as of August 2004) 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. Four-week bills are announced on Monday for a Tuesday auction and are issued (settled) on Thursday of the same week. If a Monday is a banking holiday, the bills are auctioned on Wednesday. Why Investors Care

4-Week Bill Treasury Rate

3.725 %

Highlights
The U.S. Treasury auctioned $15 billion of 4-week bills today with a high discount rate of 3.725 percent, an increase of 9 basis points over the previous week. This reflects a rising interest rate environment, not a lack of demand for this issue. The bid-to-cover ratio increased sharply to 2.66 today after dipping last week. Granted, the size of today's auction was somewhat smaller than last week's sizable one.

Trends

The 4-week note was instituted to replace the necessity for sporadic cash management bills. This weekly auction is more predictable for investors. Predictability in the Treasury market is a highly rate feature that promotes demand for these bills. The 4-week bill rate depicted in this chart represents the high discount rate from the Treasury's weekly auction on Tuesdays. 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 Tuesdays.

Data Source: Haver Analytics

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