What is a Bill Auction?
A bill auction is an event where people bid for United States Treasury bills. The outcome of the auction determines the price of the bills being issued in addition to setting an interest rate that is used as a benchmark rate by the financial industry. Because this has an impact on the economy, the results of bill auctions tend to be reported in financial publications and are also available in the business or financial sections of most newspapers. Analysts may also discuss unusually eventful auctions and their implications for the market as a whole. People who prefer to get their information from the source can look up the latest auction information on the Treasury's website.
The United States Treasury is authorized to issue a variety of securities in order to raise capital for government business. These include Treasury bonds, Treasury notes, and Treasury bills, also known as T-bills. People who invest in Treasury securities do not make as much money as they might with some other investments, but they benefit from the fact that the securities are very low risk. They are backed by the United States government and consequently, something very dramatic would have to happen for the investors to take a loss.
At the bill auction, the officiant uses a Dutch auction style. A high initial asking price is offered, and slowly lowered until a bidder responds. This determines the highest possible price for the securities. Bidders at the bill auction tend to be institutional investors purchasing very large blocks of securities. People who do not wish to be present can indicate that they will pay the average rate at the auction and securities will be set aside for them.
These auctions are held at varying intervals. A regular bill auction is scheduled on Mondays for short-term securities, and there are also monthly auctions. The Treasury may decide to hold auctions at other times to address special circumstances. If a scheduled bill auction falls on a holiday, it will be rescheduled, as the government and financial markets are not active during holidays. Schedules are announced well in advance to allow people to make plans to attend.
Individuals who want to purchase Treasury securities can do so through brokers or programs run by the Treasury. While the value of securities is determined by the auctions, individuals do not participate in Treasury auctions, as they do not deal in the volumes required of regular Treasury investors.
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