If you followed Monday's post and went to the Bloomberg site as explained, you saw that "...dealers were forced to take down 59% of the month's $37 billion offering" of this month's
2-year Treasury note auction. This, of course, is not good because it indicates that non-competitive bids were weak. As we know, individuals have been pouring into bonds. This could be an indication that this may be nearing an end.
The Bid/Cover ratio was 3.12, which was assessed as "respectable".
The stop-out rate, which indicates the highest rate the Treasury had to pay, was .498%. The Treasury starts with the lowest yields, takes the non-competitive bids next, and then the higher bids (in terms of yield, remember higher yields mean lower prices in bond land!).
Today's auction is for $36 billion of 5-year Treasury notes. Results will be available on the Bloomberg site, or CNBC, shortly after 1 pm.
A couple of extra points to note on the process. You may have wondered about the possibility of the embarrassing situation of the Treasury not being able to attract enough bids for its auction. You can stop worrying. There are 17 designated primary dealers. They have to bid on the auctions. If prior to 1 pm Treasury had not received enough bids, they would do another round with their primary dealers and tell them to increase the amount they are bidding on.
Secondly, a good way for individuals to participate in these auctions ( although I'm not sure why they would want to at these low yields) is to go to Treasury Direct - a site where they can open up an account and participate commission free.
Finally, note that the Treasury is doing the auction. It is the government's bank. To the extent that the Federal Reserve (the Central Bank - a completely different entity) buys and sells Treasury securities, it is changing the reserves in the banking system and thereby changing the nation's money supply (especially when banks are in the mood to lend).
I sure this is more than some of you cared to know about this process, but happy Treasury auction following!
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