AUCTION FUNDAMENTALS

How Treasury Auctions Work

Marketable securities can be bought, sold, or transferred after they are originally issued. The U.S. Treasury uses an auction process to sell these securities and determine their rate or yield. Annual auction activity:

  • Offers 4 types of securities with varying maturities
  • Conducts approximately 200 public auctions
  • Issues more than $4.2 trillion in securities

To finance the public debt, the U.S. Treasury sells bills, notes, bonds, and Treasury Inflation-Protected Securities (TIPS) to institutional and individual investors through public auctions. Starting in February 2006, Treasury resumed the auction of Treasury bonds. Treasury auctions occur regularly and have a set schedule. There are three steps to an auction: announcement of the auction, bidding, and issuance of the purchased securities.

Announcement

The auctions are announced in advance in most major newspapers and through press releases. Once an auction is announced, your institution may submit a bid for the security. You may bid directly through Legacy Treasury Direct (except for 30-year bonds, 20-year TIPS, 7-year notes, 4-week bills, and Cash Management bills, none of which are available in Legacy Treasury Direct), TAAPS (with an established account), or make arrangements to purchase securities through a broker, dealer, or other financial institution.

Effective April 2009, TreasuryDirect permits accounts for both individuals and various types of entities including trusts, estates, corporations, partnerships, etc.  See Learn More about Entity Accounts for full information on the new registration types.  The auction announcement details:

  • Amount of the security Treasury is selling
  • Auction date
  • Maturity date
  • Terms and conditions of the offering
  • Customers eligible to participate
  • Noncompetitive and competitive bidding close times
  • Other pertinent information

View upcoming auction announcements. Detailed information about U.S. Treasury announcements is available in the Code of Federal Regulations (CFR) at 31 CFR Part 356.

Bidding

When participating in an auction, there are two bidding options - competitive and noncompetitive.

  • Competitive bidding is limited to 35% of the issue amount for each bidder, and a bidder specifies the rate or yield that is acceptable.
  • Noncompetitive bidding is limited to purchases of $5 million for U.S. Treasury bills, notes, bonds, and TIPS. With a noncompetitive bid, a bidder agrees to accept the rate or yield determined at auction.
  • Bidding limits apply cumulatively to all methods that are used for bidding in a single auction.

For institutional investors, please note that Legacy Treasury Direct allows noncompetitive bidding only and does not offer 30-year bonds, 20-year TIPS, 7-year notes, 4-week bills, or Cash Management bills.

At the close of an auction, Treasury accepts all noncompetitive bids that comply with the auction rules and then accepts competitive bids in ascending order in terms of their yields until the quantity of accepted bids reaches the offering amount. All bidders will receive the same rate or yield at the highest accepted bid.

All auctions are open to the public. The following U.S. Treasury services are available:

Read the relevant auction regulations and the Treasury Securities Offering Announcement Press Release to find out if your institution may participate.

Issuance

  • On issue day, the Treasury delivers securities to bidders who were successfully awarded securities in a particular auction. In exchange, Treasury charges the accounts of those bidders for payment of the securities.
  • Treasury bills are issued at a discount from face value and are paid at their par (face amount) at maturity. The purchase price is listed on the auction results press release and is expressed as a price per hundred dollars.
  • Treasury notes, bonds, and TIPS are issued with a stated interest rate applied to the par amount and have semiannual interest payments. For TIPS, the interest payments and the final payment at maturity are based on the inflation-adjusted principal value of the security. In some cases, the purchaser may have to pay accrued interest.