Tuesday, July 20, 2010

Direct Bidder Percentage in Treasury Auction from January 2009 to July 2010

(Click on the chart for clearer image.)

Direct Bidder Percentage used in the chart was calculated from the auction results published by the US Treasury Department. For bills, the 1st week of the month data were used. For notes, the July auctions will be held next week. The first-ever auction of 7-year note was February 2009.


Many analysts and observers have noted the increased Direct Bidder participation in Treasury notes and bonds. However, the same is also true for shorter bills, as you can see in the chart.

There are a few volatile data series (2-year note, 7-year note), but the general average trend of Direct Bidder participation in Treasury auctions started to move up in February 2010. Notice that after April most Treasury securities featured here have over 10% Direct Bidder participation.

Events that may have influenced the trend:

In late January, the SEC announced new rules for money market funds. Money market funds would be required to hold certain percentage of safe and liquid securities such as Treasuries.

In early March, the SEC announced the implementation dates (end of May, end of June) for the new money market fund rules.

The Federal Reserve ended the quantitative easing on March 31.


SOMA System Open Market Account at the Federal Reserve New York Bank
Primary Dealer A bank or securities broker-dealer that may trade directly with the Federal Reserve System. Primary Dealers are required to bid at Treasury auctions. Current list of Primary Dealers is available at New york Fed.
Indirect Bidder Supposed to be the foreign investors, both foreign central banks and foreign private investors
Bid to Cover ratio The number of bids received divided by the number of bids accepted. The higher the ratio, the higher the demand.
Reopening The U.S. Treasury issues additional amounts of a previously issued security. The reopened security has the same maturity date and coupon interest rate as the original security, but with a different issue date and usually a different purchase price.
Cash Management Bill (CMB) A short-term security sold by the U.S. Department of the Treasury. The maturity on a CMB can range from a few days to six months. The money raised through these issues is used by the Treasury to meet any temporary shortfalls. CMBs tend to pay higher yields than bills with fixed maturities, but their shorter maturities lead to lower overall interest expense.
Supplementary Financing Program (SFP) A program initiated by the U.S. Treasury Department at the request of the Federal Reserve in September 17, 2008. The cash raised from the auction will be used in the various Federal Reserve initiatives to support the financial markets and manage its balance sheet.

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