# US Treasury Auction (Ex Ante)
Source: https://www.yieldcurve.pro/blog/treasury-auction-btc-001  
Published: 2024-01-11  
Tags: Auction, Bid to Coverage Ratio, Bills, Bonds, Notes, US Treasury

_Evaluating the Health of Today's US Treasury Auction_

# Evaluating the Health of Today's US Treasury Auction

<br />

In a previous
<a href="/blog/treasury-auction-liquidity-001">post</a>
we provided a brief primer on some of the mechanics of US Treasury (UST)
auctions.  We begain with a quick refresher on the basic types of securities
(show in Table 1) auctioned and issued by UST.

<br />

| Security | Tenors                         | Description                                    |
| :------  | :----------------------------- | :--------------------------------------------- |
| Bills    | 4 to 52 weeks                  | sold at a discount and redeemed at par         |
| Notes    | 2, 3, 5, 7, 10 years           | pay a fixed rate of interest 2X per year       |
| Bonds    | 20, 30 years                   | pay a fixed rate of interest 2X per year       |
| CMB      | less than 1 year               | cash management bills for short-term financing |
| TIPS     | 5, 10, 30 years                | pay a fixed rate on a principal indexed to CPI |
| FRN      | 2 years                        | pay a variable rate of interest 4X per year    |

<br />

#### **Table 1**:  Securities Auctioned and Issued by the US Treasury

<br />

In this post we will only be considering Bills since today's auction (for a
schedule refer to this
<a href="https://home.treasury.gov/system/files/221/Tentative-Auction-Schedule.pdf" target="_blank">link</a>)
only offers 4- and 8-Week Bills.

In the last post we touched on the Bid-to-Cover (BTC) ratio which is a
statistic that compares the total dollar amount of bids over the dollar amount
of bonds sold.  A BTC of 1 implies that supply (in the form of the dollar
amount UST hopes to raise) was exactly matched by demand (the bids sought by
auction participants).  Healthier auctions should have BTC a far above 1 as
possible.

Figure 1 shows the time-series of BTC for Bills, Notes, and Bonds from 2001 to
the present.

<br />

<img src="/admin/blog/image/67/blog_btc_all_20240109.png">
#### **Figure 1**:  BTC for Bills, Notes, and Bonds:  2001 to the present

<br />

Let's examine the distribution density diagram (DDD) for the 2 tenors up for
auction today.  For the 4- and 8-Week Bills these are shown by Figures 2 and 3.

<br />

<img src="/admin/blog/image/81/blog_btc_4week_bill_20230111.png">
#### **Figure 2**:  4-Week Bill BTC Distribution Density Diagram

<br />

The mean and interquartile ranges on the DDD are indicated with the vertical
orange dashed lines.  The left- and right-most lines indicate the 25-th and
75-th percentiles, respectively.  The middle line corresponds to the median.

For the the 4-Week Bill, BTC seems to fall close to the mode of the
distribution and comfortably between the median and 25-th percentile and
median.

<br />

<img src="/admin/blog/image/82/blog_btc_8week_bill_20230111.png">
#### **Figure 3**:  8-Week Bill BTC Distribution Density Diagram

<br />

The the 8-Week Bill BTC is well below both the mode and median yet greater than
the 25-th percentile.  For both tenors it appears that the most recent auctions
were below historical expectations.  This suggest auction health has
deteriorated recently.  We will be keeping a close eye on today's auctions and
assessing where they fall in either tenors' DDD.