AUCTION FUNDAMENTALS

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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:

To finance the public debt, the U.S. Treasury sells bills, notes, bonds, Floating Rate Notes (FRNs), and Treasury Inflation-Protected Securities (TIPS) to institutional and individual investors through public auctions. 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

You can find out when Treasury securities will be auctioned by viewing the recent announcements of pending auctions. Once an auction is announced, your institution may submit a bid for the security. You may bid directly through TreasuryDirect (except for Cash Management Bills), TAAPS (with an established account), or you can make arrangements to purchase securities through a broker, dealer, or financial institution.

The auction announcement details:

  • Amount of the security being offered
  • Auction date
  • Issue date
  • Maturity date
  • Terms and conditions of the offering
  • 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 offering amount for each bidder, and a bidder specifies the rate, yield, or discount margin that is acceptable.
  • Noncompetitive bidding is limited to purchases of $5 million per auction. With a noncompetitive bid, a bidder agrees to accept the rate, yield, or discount margin determined at auction.
  • Bidding limits apply cumulatively to all methods that are used for bidding in a single auction.

At the close of an auction, Treasury awards all noncompetitive bids that comply with the auction rules and then accepts competitive bids in ascending order of their rate, yield, or discount margin (lowest to highest) until the quantity of awarded bids reaches the offering amount. All bidders will receive the same rate, yield, or discount margin 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, Treasury delivers securities to bidders who were 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 or at par (face amount) and are paid at par at maturity. The purchase price is listed on the auction results press release and is expressed as a price per hundred dollars.
  • FRNs have quarterly interest payments and are issued with a par, discount, or premium price and a stated spread. In some cases, the purchaser may have to pay accrued interest.
  • 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.