Question

the US Treasury bond rate is determined using an auction process. Thoroughly discuss how the bond auctionprocess operates

Answer 1

There are three steps regarding auction of a bond-

A. Announcement of auction will be done by the Treasury department and there will be details regarding announcement of the treasury about amount of the securities which are being offered and auction date along with the maturity date and non competitive and competitive bidding closing times.

B. Bidding - when participating in the option there are two building options which will be competitive and noncompetitive, In competitive auction in which the competitive bidding is limited up to 35% of the offering amount for each bidder and non competitive bidding is limited to the purchase of 5 million per auction.

when the auction will be closed, treasury will be awarding all non competitive bid that comply with the auction.

C. last stage will be issuance of treasury securities because on the date of issuance date, treasury will be delivering securities to the bidders who are awarded security is in a particular auction and the treasury bills will be issued at a discount to the par and paid at the maturity.