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31 May 2011
MONEY MARKETS-U.S. bills. Get them while they're hot!
Tue May 31, 2011 12:52pm EDT
Source: Reuters
* Buyside demand perks up for 3-month, 6-month auctions
* Highest bill yields since the end of April
* Front-end rates bound in narrow range
By Ellen Freilich
NEW YORK, May 31 (Reuters) - Though yields remained in striking distance of zero, buysiders came out in force at the U.S. Treasury's three- and six-month auctions on Tuesday, taking advantage of the highest yields since the end of April.
The U.S. Treasury's Dutch bidding auctions, conducted on Tuesday, rather than the usual Monday, due to the Memorial Day holiday, had no trouble attracting bidders, analysts said.
"Historically, yields at the bottom end of the range tend to drive away buyside bidders," said Thomas Simons, money market economist at Jefferies & Co. in New York.
"Now that yields have backed up to their highest levels since the end of April, the buyside is coming back and the auctions are drawing more aggressive bids," he said.
For the $27 billion in three-month bills, the ratio of bids received over those accepted was 4.66 percent, with 69.12 percent of the bids awarded at the high rate of 0.060 percent.
The ratio of bids received over those accepted for the $24 billion in six-month bills was 4.76, with 21.39 percent of the bids awarded at the high rate of 0.115 percent.
The three-month bill auction stopped 0.5 basis point short of the when-issued yield at the 11:30 a.m. (1530 GMT) bidding deadline, Simons said.
The 37.2 percent of the three-month bill sale captured by indirect bidders was a "solid improvement" over last week and the strongest bid since March 7, Simons said.
"Not coincidentally, yields in the sector are at the highest level since late-April," he added.
"With the downshift in yields since the implementation of the new FDIC rules, buyside bidders have been desperate for yield," Simons said. "Any backup seems to draw more demand."
The Federal Deposit Insurance Corp. on April 1 instituted a new method for assessing deposit insurance fees from banks. The method forced cash that had been held as excess reserves at the Federal Reserve back into the market.
Simons said the strong indirect bid in the three-month auction probably took some wind out of the sails of the direct bid, which captured just 8.9 percent of the issue. Dealers got just 54 percent of the sale, the lowest since March 7.
The six-month bill auction also stopped a half basis point short of the when-issued yield at the 11:30 a.m. (1530 GMT) bidding deadline, Simons said.
The 4.76 ratio of bids received to those accepted was weaker than the two prior weeks' ratio, "but still solid in its own right," he said.
Indirect bidders took 43.7 percent of the six-month issue, a solid improvement over last week's 38.3 percent and the strongest since May 2, Simons said.
The direct bid was a bit weaker than recent weeks, taking down 9 percent, compared with 11.5 percent in last week's auction.
The tug and pull between yields and the relative aggressiveness of the buyside "is likely to continue for the next few months as front-end rates remain bound to this narrow range," he said. (Editing by Leslie Adler)
