New Issues: U.S. Government and Agency Underwritings Practice Questions

Competitive bidders at Treasury Auctions would typically include all of the following EXCEPT: A. Primary U.S. Government Dealers B. Individuals C. Money Market Mutual Funds D. Pension Funds

B: Individuals (Individuals generally place non-competitive bids at Treasury auctions. Competitive bids are placed by large U.S. Government securities dealers and by institutions.)

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

D: Government National Mortgage Association Bonds (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.)

Which statement is FALSE regarding the conduct of Treasury Bill auctions? A. 4 week, 13 week and 26 week T-Bills are auctioned weekly B. 1 year T-Bills are auctioned monthly C. Non-competitive bids take priority over competitive bids D. Bids are awarded based on the lowest discount yield except for 26 week bills which are sold at par

D: bids are awarded based on the lowest discount yield except for 26 week bills which are sold at par (4 week, 13 week and 26 week Treasury Bills are auctioned weekly; 1 year T-Bills are auctioned monthly. Because the amount of securities represented by non-competitive bids are withheld from auction and are always filled at the average winning yield, these bids have priority. Competitive bids will not be filled if the yield specified is too high. The bids are always awarded on the basis of lowest discount yield.)

A primary U.S. Government securities dealer purchasing T-Bills for its inventory account would most likely buy the bills:

Directly from the U.S. treasury at the weekly yield auction (A primary U.S., Government dealer buys T-Bills directly at the weekly Treasury auction and then reoffers the bills to both the public and secondary dealers.)

Which of the following statements are TRUE regarding new issues of U.S. Government agency securities? I The securities are sold through a selling group appointed by the Agency II The securities are sold through a selling group appointed by the Federal Reserve III The securities are sold at par IV The securities are sold at a par plus a mark-up

I and III (New issues of agency securities are sold through a selling group that is appointed by the Agency. The group typically consists of large banks and broker-dealers. The group sells the issue at par to the public.)

Which statements are TRUE regarding bids placed at the Treasury Auction? I Competitive Bids are always filled II Competitive Bids are not always filled III Only the lowest interest rate bids are filled IV Only the highest interest rate bids are filled

II and III (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.)

Which statements are TRUE about auctions of U.S. Government Bonds? I Bids are accepted on a percentage of par basis II Bids are accepted on a yield basis III Competitive bids are always filled IV Non-competitive bids are always filled

II and IV (The Federal Reserve conducts the auctions of new issues of U.S. Government securities for the Treasury. Only "yield" bids are accepted. When the bid is competitive, a yield is specified. The lowest bidders will win the bid; with the high bidders losing out. Smaller bidders may place "non-competitive" bids, which do not specify a yield, but which are always filled at the winning yield for that auction.)

U.S. Government agency securities are underwritten via:

Negotiated Offering (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.)

Once auctioned on Monday or Tuesday, Treasury Bills are issued to the winning bidders and must be paid for immediately following the auction date on the following:

Thursday (The Federal Reserve conducts Treasury Bill auctions weekly on Monday and Tuesday. The Bills are issued to the winning bidders, and must be paid for, on the Thursday immediately following the auction date.)

The Federal Reserve conducts Treasury Bill auctions:

Weekly (The Federal Reserve conducts weekly auctions for 4, 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.)