Preview of $69 billion U.S. 4-month Treasury bill auction: Slightly expensive forward roll suppresses bids, September SOFR futures imply an 80% probability of a rate hike
- The US Treasury will issue $69 billion WI 4-month Treasury bills, maturing on September 29. Last week's auction yield for comparable Treasury bills was 3.59%, while the current buying quote is 3.625%. The WI 4-month buying quote is 3.63%, and the forward roll is 0.6 basis points, slightly above fair value. This relatively expensive level is expected to dampen bidding demand.
- The butterfly spread between the 2-month, WI 4-month, and 6-month Treasury bills is 1.7 basis points, widening by 1.8 basis points compared to last week. The three-month fluctuation range for this butterfly spread is from minus 1 basis point to plus 2.5 basis points, currently at the wider end of the range.
- The September Secured Overnight Financing Rate futures currently trade at an implied rate of 3.75%, with pricing reflecting an 80% probability of a 25 basis point rate hike. Against this backdrop, the strategy of shorting the September contract and buying WI 4-month Treasury bills is not attractive. The average bid-to-cover ratio for the last six 4-month Treasury bill auctions was 3.07, with indirect bidders accounting for 53.14%.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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