Treasury Auctions and the
Secondary Treasury Markets
PRESENTED BY
TARO NAKANO
Agenda
 Treasury Auction
 Auction Cycle and Process
 Bidding Basis
 Primary Dealers
 Secondary Market
 Type of Market
 Regulation
Auction Cycle
 The U.S. Department of the Treasury announces
 the amount of each issue to be auctioned
 auction date
 maturities to be issued
 Two bidding basis
 Competitive bidding basis
 Noncompetitive bids
 Single-price auction
Competitive vs. Noncompetitive Bidding
 Noncompetitive bidding

small investors and
individuals

Bids are submitted in
terms of quantity


 Competitive bidding

primary dealers for their
own accounts, or on behalf
of customers

Bids are submitted in
terms of yield or discount
rate

Not guaranteed to receive
securities
guaranteed to receive
securities
limited to $1 million per
auction for bills and $5
million for coupon issues
Primary Dealer
BNP Paribas Securities Corp.
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
Jefferies & Company, Inc.
J.P. Morgan Securities LLC
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
MF Global Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
Nomura Securities International, Inc.
RBC Capital Markets, LLC
RBS Securities Inc.
SG Americas Securities, LLC
UBS Securities LLC.
Feb 2, 2011 data from
The Federal Reserve Bank of New York
 A bank or securities
broker-dealer

may trade directly with
the Federal Reserve
System ("the Fed")
 Non-Primary Dealer


must deposit the amount
in cash
must submit in advance
an amount equal to the
full face value of the
securities bid
The Secondary Market
 Over -the-counter market
 Dealers continuously bid and ask
 Virtual 24 hour trading
 3 primary trading location
New York
 London
 Tokyo

 On -the-run issue
 Off-the-run issue
 Well off-the-run issue
The Secondary Market Contd
 When-Issued Market (WI Market)


Announcement
Not exceed 35% in any one auction

Salomon Brothers Scandal 1991
 Government Broker
Auction
Regulation of Secondary Market
 Exempt from most SEC provisions and rule
 No reporting of trade
 No need to disclose the bid-ask spread

Make it difficult for customers to monitor the pricing practice
Repo Market
 Treasury Security = Collateral for a loan
 Repo rate
 Rate is less than the cost of the financing
 Term of the loan
 Overnight repo
 Term repo
 Repurchase Agreement
 Sales price – repurchase price = interest cost of the loan
Summary
 Process of Treasury Auctions
 Over -the-counter market
 WI Market
 Repo Market
References
 Wikipedia
 PUBLIC DEBT NEWS -April 12, 2011(http://www.treasurydirect.gov/instit/annceresult/press/preanr
e/2011/R_20110412_2.pdf)
 Primary Dealers List
(http://www.newyorkfed.org/markets/pridealers_listing.html)
Questions?