• 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