According to research by Barclays, the U.S. government’s website for buying Treasury debt directly at auctions has seen a significant increase in interest compared to last year, especially as bond yields continue to climb.
In May, nearly 10% of bids for short-term 4-week Treasury bills were submitted in a “noncompetitive” format, up from 4.3% in January and 2.9% in 2022. This means that investors using the government’s website do not specify a set price but instead accept the discount rate set by the auction. Additionally, orders are limited to $10 million. While big banks and foreign countries like Japan remain important buyers of government debt at auction, retail investors are increasingly participating.
Barclays also observed a rise in noncompetitive bids for longer-term government debt maturing in eight to 52 weeks, where yields have recently been above 5%. This trend indicates growing demand from individual investors.
Barclays analysts, led by Joseph Abate, explained that monitoring the share of noncompetitive awards in Treasury bill auctions provides insights into the demand from retail investors. However, they acknowledged that the U.S. Treasury direct website can be cumbersome to navigate compared to investing in money-market funds. Investing directly in Treasury bills requires some sacrifices in convenience, and investors must monetize their holdings either by transferring them into their accounts or through linked bank accounts used for initial purchases.
Ultimately, the increasing participation of individual investors highlights their growing role in U.S. Treasury auctions and their willingness to navigate the complexities of the direct purchasing process.
The Increasing Interest in Treasury Bills
According to market analyst Abate at Barclays, there has been a growing interest in individuals directly purchasing Treasury bills. While this process may require a few more steps compared to redeeming money fund shares, retail investors seem to be particularly attracted to shorter maturities where they can make more accurate cash flow forecasts.
The United States Treasury has been actively issuing bills throughout the summer season to replenish funds that were depleted during the recent debt-ceiling dispute in Congress. So far, the supply of bills has been met with strong demand. Abate commented that 3-month bill yields TMUBMUSD03M, 5.410% have decreased by approximately eight basis points since the resolution of the debt-ceiling limit in early June, coinciding with the release of roughly $800 billion in new issuance. As of Tuesday, the 3-month rate stood close to 5.42%. The expectation is that the yield will rise by another 10 basis points due to a larger surge in supply than initially anticipated.
It is worth noting that this surge in direct Treasury bill investments is occurring as stock markets approach record territory. The Dow Jones Industrial Average DJIA, +0.16% is less than 4% away from its record close in January 2022, while the S&P 500 index SPX, -0.22% ended Tuesday’s trading session at a 4.3% distance from its record close.
Analysts have closely observed a significant drop in the equity risk premium, a key indicator of the stock market’s attractiveness compared to bonds. This decrease suggests that the advantage of owning equities over bonds has been diminishing.
Abate from Barclays highlighted the ongoing Treasury issuance deluge and the Federal Reserve’s plan to reduce its balance sheet as part of its strategy to combat inflation. According to Abate, this combination creates a narrow and challenging path towards achieving a soft landing for the economy.
