Rich Carreiro <rlcarr[at]animato.arlington.ma.us> writes:

- quote -

That of course should have read "if you bid too HIGH of a yield...".

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

"Caroline" <caroline10027remove[at]earthlink.net> writes:

- quote -

US Treasury auctions run like this:
* Treasury decides how much face value of a given
security it is going to sell.
* Treasury accepts all non-competitive bids.
* Treasury starts accepting competitive bids,
starting at the lowest yield bid (i.e. highest
offered price).
* Treasury keeps accepting towards higher and higher
yield bids (lower and lower offered prices) until
the total face value of all accepted bids equals the
face value the Treasury was planning to sell.
* (And here's the non-intuitive part) *ALL* accepted
bids end up getting the highest accepted yield (i.e.
it's a single price auction -- a lot like eBay's "Dutch
Auction" option).

So yes, if you bid too low of a yield, you'll end up not buying
anything. But you lose nothing bidding non-competitively since all
people who have their bids accepted get the same yield.

- quote -

If you bid competitively, you'll either get the going rate or not make
a purchase. If you bid non-competitively, you'll get the going rate
and be guaranteed that you make a purchase.

As you are an individual investor, I would be shocked if the
difference in actual value between the worst and the best (for the
buyer) bids is anything other than negligible for the amount of money
you'd likely be investing in the security.

But you can find out for sure -- the auction results, which include
the lowest and highest yield accepted bids as well as the average, are
online -- so go look at the spreads.

For example, at the 13 November auction of 10-yr T-Notes, the high
yield (i.e. best price for buyer) was 4.36%, the median yield was
4.33%, and the low yield (i.e. worst price for buyer) was 4.30%.

There aren't going to be any huge surprises -- auctions of new 10-year
notes are going to end up going for a yield which is very close to the
yield of already publically traded treasury securities with 10 years
left to go until maturity. So I really don't see much point to an
individual investor making a competitive bid.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

[Moderator: 2nd Time Trying To Get This Through.]

I will likely have a Treasury Direct account soon, and I am now studying how to
purchase new issue Treasury Notes (that is, Treasury securities maturing within
ten years).

Can anyone describe how they have purchased such notes via "competitive
bidding"? Is it like executing a stock trade where one sets a maximum price as a
bid good for the day (say), and if the stock price falls to it, your purchase is
executed that day? If not, no purchase occurs?

I don't like what I see below (from the TD web site) about "noncompetitive
bidding." Namely, being stuck with whatever the auction determines to be the
going rate?

But perhaps I am missing something. Recent auction results (available at the TD
web site) indicate that non-inflation indexed Treasury Notes tend to sell at a
price resulting in a yield slightly higher than the face interest rate.

----From the TD Web Site-----
2.6) What is meant by "competitive bidding" and "noncompetitive bidding?"

These are the two types of bidding for a Treasury security. When you bid for a
Treasury bill, note, or *bond, you must choose whether to bid competitively or
noncompetitively.

If you place a noncompetitive bid, we guarantee you will receive the security
you desire. What's the catch? It's not a catch, really, but by bidding
noncompetitively you agree to accept whatever rate or yield is determined at the
auction. ***Investors who don't consider themselves expert securities traders
usually bid noncompetitively.***

A competitive bid is one where you specify the rate or yield you will accept. We
may reject a competitive bid, grant it in less than the amount you requested, or
grant it in the full amount you requested.