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U.S. Treasury Auction. Treasury ----------------------- U.S . Treasury (Government credibility , more flexible to trade ) Goal of Treasury Auction : Government: The Higher price to sell, the better - PowerPoint PPT Presentation
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• Treasury -----------------------U.S. Treasury (Government credibility , more flexible to trade)
• Goal of Treasury Auction:
Government: The Higher price to sell, the better
Bidder: as low price as possible to get the bond/note/bill with a certain amount of par value
U.S. Treasury Auction
Which kind of financial asset has both the certain amount of payback and the certain amount of time period?
• Bill--<1 Y3month weekly6month weekly1year 4 week
http://www.treasurydirect.gov/RI/OFAnnce
• Note—2-10Y2year monthly5year monthly10 year quarterly
• Bond-->10Y15year quarterly20 year quarterly30year quarterly
U.S. Treasury AuctionTypes are clarified by maturity period
Step1. Announcement day
Total amount issued to be auctioned
Each type of maturities
Auction Date
As a qualified bidder(able to access online system ), Longtan wants to bid for a U.S. Treasury
• Options to choose:
• Tender-------2Billion
(amount I want to buy)
• Yield Bid-----2.58%(minimum yield I can accepted)
• 5-year Note
Step. 2 Auction day
• Submit before 1:00 pm eastern time• Noncompetitive tender and nonpublic
purchase submit before 12:00pm • Amount available to auction =Total amount issued to be auctioned- Noncompetitive tenders(1M limited each)- nonpublic purchase( Treasury reserve )
Auction day • One hour after submission through online system:
Available to provide in book entry form @ Federal Reserve Bank Only a receipt to show ownership Ownerships transfer more easier through Bank account
What happen during this one hour?Name Yields Bid Tender Accumulate
Total(Billion) Keiko 2.55% 3 3
Ploy 2.56% 6 9
Sea 2.56% 4 13
Mini 2.57 5 18
Longtan 2.58% 2 20
Chip 2.59% 9 (9/15 )*(30-20)
Mike 2.59% 3 (3/15) *(30-20)
Sarah 2.59% 3 30 (3/15) *(30-20)
Frances 3.00% 5 30
Ketch 3.01% 8 30“Missed” “Shut out”
Chip 2.59% 6.67 26.67 (9/15 )*(30-20)
Mike 2.59% 1.67 28.34 (3/15) *(30-20)
Sarah 2.59% 1.67 30 (3/15) *(30-20)Stop Yield
Assume 10 billion for nonpublic and noncompetitive tenderTotal Amount available to auction= 40-10=30Billion
15demand
Who are qualified to buy in the primary market?
Could Longtan able to afford 2 billion?
Who can guarantee that I will purchase after I bid for it ?
• Nonprimary dealer-----------Longtan(need guarantee)• Primary dealer-------------report to Federal Reserve
and continue meet criteria to bid for a certain amount After 1991
Commercial bank -----------Longtan to be customerQualified broker-dealer --------customer/ to be dealer my own (Possible if I have money)
Conclusion
• Step1. get information from announcement day
• Step2. Submit request before auction day
Step 3. The specific online system run through all requirements and comes to a result based on the process explained on slides 7
Reference:
• http://www.treasurydirect.gov/• http://
www.treasury.gov/services/Pages/auctions_index.aspx
• http://www.treasurydirect.gov/RI/OFAnnce• http://
www.youtube.com/watch?v=WLx1_nynJD0
Frequently ask Q&As?
• 1. What is Noncompetitive tenders?Non-competitive tender is for small investors, while competitive tender is for large institutional investors. The price that a non-competitive bidder receives is the average bid price of all competitive bids.
continued
• 2. Who will be in the primary dealers?
http://newyorkfed.org/research/current_issues/ci13-1/ci13-1.html