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 valueU.S. Treasury AuctionWhich kind of
financial asset has both the certain amount of payback and the
certain amount of time period?Valuing (Pricing) a Financial Asset
-- Timing and Amount of Future Cash Flow1Bill--10Y15year
quarterly20 year quarterly30year quarterlyU.S. Treasury
AuctionTypes are clarified by maturity period Step1. Announcement
day Total amount issued to be auctioned
Each type of maturities Auction Date3As a qualified bidder(able
to access online system ), Longtan wants to bid for a U.S.
TreasuryOptions to choose:Tender-------2Billion(amount I want to
Yield Bid-----2.58%(minimum yield I can accepted)
4Step. 2 Auction daySubmit before 1:00 pm eastern
timeNoncompetitive 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 accountWhat happen during this one hour?NameYields
2.58%220Chip2.59%9 (9/15 )*(30-20)Mike2.59%3 (3/15)
*(30-20)Sarah2.59%3 30 (3/15)
*(30-20)Sarah2.59%1.6730 (3/15) *(30-20)Stop YieldAssume 10 billion
for nonpublic and noncompetitive tenderTotal Amount available to
15demand7Who 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)ConclusionStep1. get information from announcement
dayStep2. 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
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.
continued2. Who will be in the primary dealers?