Treasury auction data provides valuable insight that cannot be gleaned from simply looking at UST yields set in the secondary market.

Not only is auction data primary market data that shows us levels of demand for USTs from the largest global investors and repo market dealers, it also provides us with information on how strong overall demand is.

If there really is a shortage of collateral in the financial system, the data should reflect strong demand for USTs, particularly in T Bill auctions. Specifically, we are looking at trends in an auction’s “Low Yield”, which reflects how willing participants are to bid high for the Treasuries on offer.

Here’s the data for 4 week Bills, with data going back to when the world first entered into Covid lockdowns last year.

We can see that after spending almost a year above 0%, Low Yields in 4w Bill auctions hit rock bottom again in Feb ‘21, and remain stuck there today.

More worryingly, over the course of the last 4 months, High and Median Yields have converged toward 0% as well, demonstrating a marked increase in demand.

8 week Bill auctions reflect the same circumstance, with Low Yields hitting 0% for the first time since March ‘20 in February this year.

High and Median Yields have also converged towards 0% over the last four months, signaling the same kind of increase in demand as the 4w Bills.

Moving up the yield curve, 2 year Note auctions have seen High, Median, and Low Yields stay in a tight range over the same period.

While High and Median Yields have come down slightly over the last four months, Low Yields have actually moved a little higher, departing from the precedent set by 4 and 8 week Bills.

However, it must be noted that the ranges here are extremely tight, at less than 5 basis points.

Therefore, investor demand for USTs at the short and most liquid end of the yield curve is very strong, but what about in the belly of the curve and further out?

To be concluded…