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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?

U.S. Treasury Treasury ----------------------- U.S. Treasury (Government credibility, more flexible to trade) Goal of Treasury Auction Goal of Treasury

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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 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 buy)

Yield Bid-----2.58%(minimum yield I can accepted)

5-year Note

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 BidTenderAccumulate Total(Billion) Keiko2.55%33Ploy2.56%69Sea2.56%413Mini2.57518Longtan 2.58%220Chip2.59%9 (9/15 )*(30-20)Mike2.59%3 (3/15) *(30-20)Sarah2.59%3 30 (3/15) *(30-20)Frances3.00%530Ketch3.01%830Missed Shut outChip2.59%6.6726.67(9/15 )*(30-20)Mike2.59%1.6728.34(3/15) *(30-20)Sarah2.59%1.6730 (3/15) *(30-20)Stop YieldAssume 10 billion for nonpublic and noncompetitive tenderTotal Amount available to auction= 40-10=30Billion

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 7

Reference:http://www.treasurydirect.gov/http://www.treasury.gov/services/Pages/auctions_index.aspxhttp://www.treasurydirect.gov/RI/OFAnncehttp://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.

continued2. Who will be in the primary dealers?

http://newyorkfed.org/research/current_issues/ci13-1/ci13-1.html