PRESENTED BY TARO NAKANO Treasury Auctions and the Secondary Treasury Markets
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 guaranteed to receive securities limited to $1 million per auction for bills and $5 million for coupon issues 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
Primary Dealer 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 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
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 Auction Not exceed 35% in any one auction Salomon Brothers Scandal 1991 Government Broker
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, ( e/2011/R_ _2.pdf) Primary Dealers List ( Questions?