An investor’s must-know guide to US Treasury auctions

Market Realist

Why didn't demand for Treasury notes and bonds rise much? (Part 3 of 8)

(Continued from Part 2)

U.S. Treasury auctions

The U.S. Treasury Department issues Treasury securities of varying maturities to finance government debt. The yield on these securities is determined through a public auction process, where securities are offered for sale to institutional and retail investors. The purpose of the auctions is to obtain financing from financial markets at the most competitive cost.

Treasury securities can be marketable and non-marketable. Marketable securities are issued for meeting the financing requirements of the federal government. These debt instruments can be also be traded on the secondary market. The secondary market for Treasury securities is one of the most liquid in the world. This series seeks to provide an overview of the auction process for marketable Treasury securities.

Treasury Bills, or T-Bills, are of four-week, 13-week, 26-week, and 52-week maturities. The first three maturities are offered each week, while the 52-week bills are offered every four weeks. T-Bills are offered at a discount to face value and redeemable at par on maturity. One ETF that invests primarily in T-Bills is the SPDR Barclays 1-3 Month T-Bill ETF (BIL).

Treasury Notes, or T-Notes, are issued for two-year, three-year, five-year, seven-year, and ten-year maturities. Original-issue auctions for the ten-year bond are held in February, May, August, and November, with reopenings scheduled in the remaining months. Auctions for the other notes are held monthly. T-Notes pay semi-annual interest and are redeemable at par. Popular ETFs investing in these debt instruments include iShares 7-10 Year Treasury Bond ETF (IEF).

Treasury Bonds or T-Bonds are issued for maturities over ten years. Original-issue auctions for the 30-year bond are held in February, May, August, and November, with reopenings scheduled in the remaining months. T-Bonds pay a semi-annual interest and are redeemable at par. An ETF investing in Treasuries with a maturity exceeding 20 years is the iShares Barclays 20+ Year Treasury Bond Fund (TLT).

Treasury inflation-protected securities (or TIPS) are issued for five-, ten-, and 30-year maturities. Auctions for five-year TIPS are usually held mid-April, with reopening scheduled mid-month in August and December. Auctions for ten-year TIPS are usually held in mid-January and mid-July, with reopening scheduled mid-month in March, May, September, and November. Auctions for 30-year TIPS are usually held in mid-February, with reopening scheduled mid-month in June and October. Popular ETFs investing in these debt instruments include the iShares TIPS Bond ETF (TIP).

Floating-rate notes (or FRNs) are issued for two-year maturities. Original-issue auctions are held in January, April, July, and October, with reopenings scheduled each month in the remaining months. Funds like the WisdomTree Bloomberg Floating Rate Treasury Fund (USFR) invest in Treasury FRNs.

To learn more about last week’s T-bill auctions, read on to the next part of this series.

Continue to Part 4

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