New Issues: U.S. Government and Agency Underwritings

In the weekly auction of Treasury Bills, which statement is TRUE? A Competitive bids are always filled B Non-competitive bids are only filled if there is sufficient supply C The Federal Reserve allocates securities from the lowest yields to the higher yields D The Federal Reserve allocates securities based on size of each order

The best answer is C. In the weekly T-Bill auction, the amount of non-competitive bids is set aside from the total securities to be auctioned and is filled at the average winning rate. The remaining T-Bills to be auctioned are filled from the lowest interest rate bid on up. Once the issue is "sold out," all of the winning bidders are filled at the highest interest rate bid that completed the sale (so all winning bidders get the same interest rate - this is a "Dutch Auction"). The remaining higher rate competitive bids are void.

Payment for U.S. Government securities that are sold through auction is made on: A Auction Date B Auction Date + 1 C Issue Date D Issue Date + 1

The best answer is C. Payment for U.S. Government securities that are won at auction must be made on issue date (Thursday of the auction week for T-Bills and the 15th of the month for STRIPS, TIPS, Treasury Notes, and Treasury Bonds). Payment is to be made in cash, Federal Funds, or in similar maturing Government securities (effecting a direct "rollover" of that debt). Review question # 8-3-2-5 New Issues : U.S. Government and Agency Underwritings : Treasury Auctions : Settlement Copyright 1989-2020 Pass Perfect, LLC All Rights Reserved

New U.S. Government agency securities are: A underwritten via competitive bid and offered through selling groups B underwritten via negotiated offering and offered through selling groups C underwritten via competitive bid and offered through the Federal Reserve D underwritten via negotiated offering and offered through the Federal Reserve

The best answer is B. Government agency securities are underwritten via negotiated offerings; not via competitive bid as is the case with U.S. Government issues. The agency assembles a selling group through which it offers the securities. It negotiates both the interest rate placed on the issue based upon the level of pre-sale orders received by the selling group; and the selling concession paid to the selling group for offering the securities to the public. Review

New issue agency securities are sold: A by competitive bid at auction B by non-competitive bids placed with the Federal Reserve C through a selling group of broker-dealers assembled by the agency D through commercial banks and savings and loans Review

The best answer is C. Whereas government securities are sold at auction conducted by the Federal Reserve, agency securities are sold to the public through a selling group of broker-dealers assembled by the agency. This is done on a negotiated basis, with the group consisting mainly of primary government dealers.

All of the following securities are sold through auction EXCEPT: A Treasury Bills B Treasury TIPS C General Obligation Bonds D Government National Mortgage Association Bonds

The best answer is D. All agency securities, including GNMA issues, are sold through selling syndicates in a negotiated offering. T-Bills and TIPS - Treasury Inflation Protection Securities - are sold through yield auctions conducted by the Federal Reserve for the Treasury. General Obligation municipal bonds are sold through competitive bid as well.

All of the following are primary purchasers of Treasury securities EXCEPT: A Commercial banks B Broker-dealers C Investment companies D Federal Reserve Board

The best answer is D. Commercial banks and broker-dealers bid at Treasury auctions to buy securities for their inventories. Investment companies such as government bond mutual funds and unit investment trusts bid at auction to buy large blocks of Treasury securities directly, bypassing a dealer or broker and therefore saving commissions or markups. The Federal Reserve Board is not a primary purchaser of Treasury securities - it does not bid at Treasury auctions. However, it does trade them in the secondary market to influence the availability of credit. Review question # 8-3-3-1 New Issues : U.S. Government and Agency Underwritings : Treasury Auctions : Primary Purchasers Copyright 1989-2020 Pass Perfect, LLC All Rights Reserved

Which statement is TRUE regarding bids placed at the Treasury Auction? A Individuals may only place non-competitive bids B Non-competitive bids are not always filled C Individuals may place competitive bids D Competitive bids are always filled Review

The best answer is A. At the weekly Treasury auction, non-competitive bids are always filled at the average winning yields of the competitive bids. Only the lowest interest rate competitive bids are filled; the higher rate competitive bids that exceed the amount of securities up for auction that week are rejected. Only primary government dealers place competitive bids; secondary dealers and individuals place non-competitive bids.

Primary offerings of agency securities are made at: A par B par plus a commission C par plus a mark-up D par plus a selling concession

The best answer is A. Primary offerings of agency securities to the public are made at par. The selling concession is paid to the selling group members by the agency issuing the security. The concession is paid out of the proceeds of the offering.

The Federal Reserve conducts Treasury Bill auctions: A Daily B Weekly C Quarterly D Annually

The best answer is B. The Federal Reserve conducts weekly auctions for 4, 8, 13, and 26 week T-Bills and monthly auctions for 52 week T-Bills. The auction takes place on either Monday or Tuesday. The T-Bills are issued to the winning bidders and must be paid for on the Thursday immediately following the auction date.