PRESENTED BY

TARO NAKANO

Treasury Auctions and the Secondary Treasury

Markets

Agenda

Treasury Auction Auction Cycle and Process Bidding Basis Primary Dealers

Secondary Market Type of Market Regulation

Auction Cycle

The U.S. Department of the Treasury announces the amount of each issue to be auctioned auction date maturities to be issued

Two bidding basis Competitive bidding basis Noncompetitive bids Single-price auction

Competitive vs. Noncompetitive Bidding

Noncompetitive bidding

small investors and individuals

Bids are submitted in terms of quantity

guaranteed to receive securities

limited to $1 million per auction for bills and $5 million for coupon issues

Competitive bidding

primary dealers for their own accounts, or on behalf of customers

Bids are submitted in terms of yield or discount rate

Not guaranteed to receive securities

Primary Dealer

A bank or securities broker-dealer may trade directly with

the Federal Reserve System ("the Fed")

Non-Primary Dealer must deposit the

amount in cash must submit in advance

an amount equal to the full face value of the securities bid

BNP 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 York

The Secondary Market

Over -the-counter market Dealers continuously bid and ask Virtual 24 hour trading 3 primary trading location

New York London Tokyo

On -the-run issueOff-the-run issue

Well off-the-run issue

The Secondary Market Contd

When-Issued Market (WI Market)

Announcement Auction Not exceed 35% in any one auction

Salomon Brothers Scandal 1991

Government Broker

Regulation of Secondary Market

Exempt from most SEC provisions and rule No reporting of trade No need to disclose the bid-ask spread

Make it difficult for customers to monitor the pricing practice

Repo Market

Treasury Security = Collateral for a loanRepo rate

Rate is less than the cost of the financing Term of the loan

Overnight repo Term repo

Repurchase Agreement Sales price – repurchase price = interest cost of the

loan

Summary

Process of Treasury AuctionsOver -the-counter marketWI MarketRepo Market

References

WikipediaPUBLIC DEBT NEWS -April 12, 2011-

(http://www.treasurydirect.gov/instit/annceresult/press/preanre/2011/R_20110412_2.pdf)

Primary Dealers List(http://www.newyorkfed.org/markets/

pridealers_listing.html)

Questions?