What is a Treasury Auction?

A Treasury auction is a public auction held by the United States Department of the Treasury. These auctions help lower the cost of financing the national debt by offering competitive bidding in a "risk free" environment. The US Department of the Treasury raises funds through the Federal Reserve Bank of New York (FRBNY) through Dutch auction — an auction where the asking price starts off high and is slowly lowered until there is a buyer. The FRBNY and brokers carry out each Treasury auction using the Trading Room Automated Processing System (TRAPS), where bids are settled in minutes.

Four types of securities are sold in a Treasury auction: bills, notes, bonds, and Treasury Inflation-Protected Securities (TIPS). Each security is of varying maturity. Annually, there are 200 Treasury auctions that raise about $4.2 trillion in securities.

Each Treasury auction follows a similar three-part process. The auction is first announced through major newspapers and press releases. Bids are then taken and the securities are then issued to the highest bidder.

The announcement of a Treasury auction usually takes place several days beforehand, but has keen known to take place the day of the event. One may also get on the Bureau of the Public Debt's e-mail mailing list by visiting the Bureau of the Public Debt's Web site. In addition, the Department of the Treasury publishes a multiple-month calendar that contains tentative auction dates. This calendar is published the first Wednesday of February, May, August and November.

In the announcement, one learns: the value of the securities the Treasury is selling; the auction date; the maturity date; terms and conditions; eligible customers; bidding close times; and other useful information.

Once the bidding period is open, financial institutions and individual investors may submit their bids. This is usually done through a bank, broker, or through TreasuryDirect — the government's website for buying securities at Treasury auctions.

One may subscribe to an e-mail list to learn the results of the auction, or by viewing the results on the Bureau of the Public Debt's Web site. Available results from previous auctions date back as far as 1980.

On the date of issuance following the auction, securities are delivered to the winning bidders. Winners may then hold on to that security until maturation, or sell before the security matures.

There are a series of rules that govern the Treasury auction that lay out terms and conditions, sets investment limits, call for proper reporting and more. They also explain definitions and calculations that go into the transactions. These can be found in detail at the TreasuryDirect Web site.