Research for Online Investors
This article originally appeared as MarketToday on
Treasury issues a press release with the amount of debt to be issued and how much debt is coming due that the
Federal Reserve owns. Participants see this as a tip of the Fed’s hand,
showing how much money they have to buy new issues.
Investors can place bids either competitively or on a non-competitive
basis. Non-competitive bids are filled first at
the lowest competitive bid submitted. If non-competitive bids take all of the allotment, no other investor orders are
the non-competitive bids are filled, the lowest competitive bids are filled, if any treasuries are left, Treasury
moves to the next highest competitive bid and so on. The notes are sold in the order of increasing
yields until the total debt is sold.
are three types of bidders at Treasury Auctions; Primary Dealers, Direct Bidders, and Indirect
Bidders. Primary Dealers are
under contract to deal with the Federal Reserve Bank of New York and must buy treasuries at each
auction. Direct Bidders place
bids directly with Treasury before the auction, and Indirect Bidders who place orders through other Direct Bidders
or Primary Dealers. These
Indirect Bidders can be anonymous to other participants, and the Treasury.
Indirect Bidders are assumed to be Foreign Governments. In the last year the Fed has bought Treasuries as an indirect
bidder. This allows the Fed to buy all Treasuries that do not go to
other bidders, a so called ‘buyer of last resort.’
are the results of today’s 56-day note auction (two months)
March 03, 2010
Term and Type of
March 04, 2010
April 29, 2010
Competitive $107,278,000,000 25,000,012,000
Subtotal $107,278,338,000 $25,000,350,000
Indirect Bidder $8,065,000,000 $4,563,210,000
Total Competitive $107,278,000,000 $25,000,012,000
Interesting notes on today’s results:
Only $338,000 was submitted on noncompetitive basis. Would you want to buy treasuries at NO return? Actually
they did a little better than NO return; they will actually receive 0.90%
annualized. 100 grand will make $150 dollars in two
months. Not enough to pay taxi fare.
54.22% of orders were filled at the highest rate, 0.125% Over half of the bidders were requesting higher rates. This signals interest rates, even on short term lending, is moving
higher. 73.5% of the treasuries were filled to Primary Dealers, they HAVE
TO BID. Less than 19% of the treasuries went to Indirect Bidders, even
though the Treasury accepted 56% of the bids. How much of this was back
doored to the Fed? How much of the Primary Dealers purchases will go to
the Fed next week? This is the opaque world of Treasury
Another term you will hear discussed is the “Coverage
Ratio.” This is the amount of bids divided by accepted
(covered). Today’s coverage ratio was 4.29 The lower this number goes the more nervous we should be. Bids at higher rates are better than no bidders! A coverage ratio less than 2 is considered a ‘failed auction’, as the Treasury must take
over half of the bids submitted.
You can check Treasury Auction Results weekly to read the tea leaves; I hope this has helped
you. Here is the link for the results, posted shortly after the auction
Just select the year and go to auction you would like to check.
The information presented in this newsletter is based on generally available news releases,
corporate filings, current events, interviews and the editor’s opinions. It may
contain errors and you should not make investment decisions based solely on what you believe you have read
here. Do your own research, it is your money. If you lose it, it is your responsibility, not ours or your grandmothers!
The editor may or may not have a position in any securities discussed.
The editor may have held a position in a security earlier, or in the
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