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Treasury Auctions and the Secondary Treasury Markets

Treasury Auctions and the Secondary Treasury Markets

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Treasury Auctions and the Secondary Treasury Markets

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  1. Treasury Auctions and the Secondary Treasury Markets Presented by Taro Nakano

  2. Agenda • Treasury Auction • Auction Cycle and Process • Bidding Basis • Primary Dealers • Secondary Market • Type of Market • Regulation

  3. 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

  4. 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

  5. Primary Dealer BNP Paribas Securities Corp.Barclays Capital Inc.Cantor Fitzgerald & Co.Citigroup Global Markets Inc.Credit Suisse Securities (USA) LLCDaiwa Capital Markets America Inc.Deutsche Bank Securities Inc.Goldman, Sachs & Co.HSBC Securities (USA) Inc.Jefferies & Company, Inc.J.P. Morgan Securities LLCMerrill Lynch, Pierce, Fenner & Smith IncorporatedMF Global Inc. Mizuho Securities USA Inc.Morgan Stanley & Co. IncorporatedNomura Securities International, Inc.RBC Capital Markets, LLCRBS 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

  6. 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

  7. The Secondary Market Contd • When-Issued Market (WI Market) • Announcement Auction • Not exceed 35% in any one auction • Salomon Brothers Scandal 1991 • Government Broker

  8. 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

  9. 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

  10. Summary Process of Treasury Auctions Over -the-counter market WI Market Repo Market

  11. References • Wikipedia • PUBLIC DEBT NEWS -April 12, 2011- (http://www.treasurydirect.gov/instit/annceresult/press/preanre/2011/R_20110412_2.pdf) • Primary Dealers List (http://www.newyorkfed.org/markets/pridealers_listing.html) • Questions?