US sells USD 43bln of 1-month bills at 0bps, covered 4.17x; USD 43bln of 2-month bills at 1bp, covered 3.47x

Analysis details (16:37)

This is the second time bills have been sold at par given the 0bp 1-month auction at the end of April, coming as an increasing amount of cash chases a falling amount of collateral. It's worth highlighting that as things stand, Treasury auctions for coupons (excluding TIPS) cannot auction at a negative rate, and instead have to clear at either 0% or positive. Thus, as secondary market rates begin to fall below the ZLB, an arb opportunity arises for those who can bid for Treasury securities at par in the auction, and then immediately sell for a profit in the secondary market. Given it is expected that short-rates will continue to drift lower, participants can expect a pick-up in demand (higher B/C ratios) at Treasury auctions that have a price cap at par, similar to what was seen last year (graph via BofA from last year):  

13 May 2021 - 16:32- Fixed Income- Source: Newswires