MONEY MARKETS-U.S. bill sales get demand from buyside, dealers

Tue Oct 9, 2012 3:00pm EDT

By Ellen Freilich

NEW YORK Oct 9 (Reuters) - Weekly U.S. sales of short-term U.S. Treasury debt drew solid demand on Tuesday with dealers taking the largest portions of the issues and yields on the issue remaining low, anchored by the Federal Reserve's very low overnight rates.

At its September policy meeting, the Fed said it would keep the target range for its federal funds rate at zero to 1/4 percent and said it currently anticipated "that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid 2015."

The Treasury sold $32 billion in three-month bills at a high rate of 0.100 percent, awarding 72.35 percent of the bids at the high. The value of bids received over those accepted, known as the bid-cover ratio, was 4.55.

The Treasury also sold $28 billion in six-month bills at a high rate of 0.145 percent, awarding 9.31 percent of the bids at the high. The bid-cover ratio was 4.68.

The three-month bill auction stopped one basis point short of the when-issued bid, the first auction to do so since April 2, said Thomas Simons, vice president and money market economist at Jefferies & Co in New York.

The appeal of the bill may have been its maturity date, Jan. 10, 2013, which bridges year-end, he said. The 4.55 bid cover ratio was "right in line with the recent average," he said. Meanwhile, dealers got just 58.9 percent of the sale, the least since April 2.

The six-month bill auction stopped on the 11:30 a.m. bidding deadline yield of 14.5 basis points, making it the highest yielding six-month bill auction since Aug. 20, Simons said.

The 4.68 bid cover ratio for the six-month bill sale was slightly below the recent average, he said, and dealers got 70.4 percent of the sale, their largest share since Sept. 10.

"Apparently the buyside focused their attention on the three-month auction this week," Simons said.

Still, with overnight general collateral repo rates offering yields in the mid-20 basis points, the buyside is unlikely to display a "huge interest" in bills and auctions "will continue to be dealer-dominated," he said.

"The maturity dates (bridging year-end) brought out some increased interest from the buyside this week, but that bid will not be consistent going forward," he said.

A sale of $40 billion in four-week bills is planned for Wednesday, Oct. 10, to be settled on Thursday, Oct. 11.