Declaration of auction results, Financial Management

Typically, there exist two types of bids in the treasury auction process. They are: Competitive bid and non-competitive bid.

A non-competitive bid is a bid an entity submits and which is willing to purchase the auctioned security at the pre-determined yield by the auction process. Normally, individual investors, who are mostly smaller institutional investors, submit a non-competitive bid for purchase of treasury securities. In such case, the bidder submits only the desired quantity but not the yield at which he is willing to purchase the auctioned security. This desired quantity should not exceed $1 million for treasury bills and $ 5 million for treasury coupon securities.

On the contrary, competitive bid is a bid submitted by the bidder in which he specifies the quantity desired and the yield at which he is willing to purchase the auctioned security. Normally, these are the bids the brokers/dealers, depository institutions, and some of the larger money management firms submit.

The auction results are declared after deducting the total non-competitive tenders and non-public purchases from the total securities auctioned. Non-public purchases mean the purchases made by the Federal Reserve itself. The remaining amount after such deduction is meant for distribution among the competitive bidders.

Subsequently, the bids are arranged from the lowest yield bid to the highest yield bid, i.e., the bids are arranged from the highest price to the lowest price. Until the amount to be distributed to the competitive bidders is completely allocated, all competitive bids (starting form the lowest yield bid) are accepted. Further, the highest yield the treasury accepts is referred to as stop yield and bidders at that yield are awarded a percentage from their total tender offer.

In US, all treasury auctions are single-price auctions. In it, all bidders are awarded securities at the stop yield i.e., the highest yield of accepted competitive tenders. This type of auction is termed as 'Dutch auction'. 

Posted Date: 9/8/2012 6:47:20 AM | Location : United States







Related Discussions:- Declaration of auction results, Assignment Help, Ask Question on Declaration of auction results, Get Answer, Expert's Help, Declaration of auction results Discussions

Write discussion on Declaration of auction results
Your posts are moderated
Related Questions
As the cash manager of your company, you wish to buy $1,000,000 in 30-day Treasury bills. You obtain the following bid/ask quotes from three dealers:

the importance of a balanced capital structure and the problems which are associated with high levels of gearing

Question: Consider the following information:   Stock A Stock B Beta 0.8 1.4 Share price, $

Examples of ICQ's and ICEQ's ICQ: "Does an authorised senior person review purchase invoices before payment is made?" ICEQ: "Can payments be made on purchase invoices th


Explain what will happen while the government imposes a minimum price that is below the market equilibrium price. Why is this true? The minimum price will comprise no impact on t

Q. Merits of Wealth Maximization Approach? Merits of Wealth Maximization Approach:- The wealth maximization schema is superior to the profit maximization approach because:

Modified duration is used to determine the percentage change in the bond's prices for a 100 basis point (1%) change in the yield. The underlying assumption is tha

Deterministic Model After the macroeconomic, industrial and business analysis of the company chosen is done First of all a point estimate for all the input variables in a valua

The salem company bond currently sells for $955 has a 12% coupon interest rate and $ 1000 par value pays interest annually an