Slide 1AgendaAuction CycleCompetitive vs. Noncompetitive BiddingPrimary DealerThe Secondary MarketThe Secondary Market ContdRegulation of Secondary MarketRepo MarketSummaryReferencesP R E S E N T E D B Y TARO NAKANOTreasury Auctions and the Secondary Treasury MarketsAgendaTreasury AuctionAuction Cycle and ProcessBidding BasisPrimary DealersSecondary MarketType of MarketRegulationAuction CycleThe U.S. Department of the Treasury announces the amount of each issue to be auctionedauction date maturities to be issuedTwo bidding basisCompetitive bidding basisNoncompetitive bidsSingle-price auctionCompetitive vs. Noncompetitive BiddingNoncompetitive biddingsmall investors and individualsBids are submitted in terms of quantityguaranteed to receive securitieslimited to $1 million per auction for bills and $5 million for coupon issuesCompetitive biddingprimary dealers for their own accounts, or on behalf of customersBids are submitted in terms of yield or discount rateNot guaranteed to receive securitiesPrimary DealerA bank or securities broker-dealer may trade directly with the Federal Reserve System ("the Fed")Non-Primary Dealermust deposit the amount in cashmust submit in advance an amount equal to the full face value of the securities bidBNP 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 YorkThe Secondary MarketOver -the-counter marketDealers continuously bid and askVirtual 24 hour trading3 primary trading locationNew YorkLondonTokyoOn -the-run issueOff-the-run issueWell off-the-run issueThe Secondary Market ContdWhen-Issued Market (WI Market)Announcement AuctionNot exceed 35% in any one auctionSalomon Brothers Scandal 1991Government BrokerRegulation of Secondary MarketExempt from most SEC provisions and ruleNo reporting of tradeNo need to disclose the bid-ask spreadMake it difficult for customers to monitor the pricing practiceRepo MarketTreasury Security = Collateral for a loanRepo rateRate is less than the cost of the financing Term of the loanOvernight repoTerm repoRepurchase AgreementSales price – repurchase price = interest cost of the loanSummary Process of Treasury AuctionsOver -the-counter marketWI MarketRepo MarketReferencesWikipediaPUBLIC DEBT NEWS -April 12, 2011-(http://www.treasurydirect.gov/instit/annceresult/press/preanre/2011/R_20110412_2.pdf)Primary Dealers
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