How to Buy Treasury Bonds
One way the government finances activities of the Federal government is by the sale of marketable Treasury bills, notes, and Treasury Inflation-Protected Securities (TIPS) to the public. Marketable securities are those securities that can be transferred, bought and sold after they are originally issued. Treasury uses an auction process to sell marketable securities and determine their rate or yield. The value of Treasury marketable securities fluctuates constantly according to market demand. You can participate in an auction and purchase bills, notes and TIPS directly from the Treasury or you can purchase them through a bank or broker. Marketable securities that you own can also be bought and sold at any time at current rates and prices through brokers and many financial institutions.
Overview of the Auction Process
Treasury sells marketable securities (bills, notes and TIPS) through regular public auctions, by which the rate or yield of these securities are determined.
The process begins several days before the scheduled auction when the Treasury announces the details of the upcoming issue, including the amount to be auctioned and the maturity date. When you participate in an auction, you have two bidding options – competitive and noncompetitive. Noncompetitive bidding is limited to purchases of $5 million for Treasury bills, notes and TIPS.
- With a competitive bid, you specify the rate you will accept.
- With a noncompetitive bid, you agree to accept whatever rate is determined at auction.
At the close of an auction, Treasury accepts all noncompetitive bids that comply with the auction rules, and then accepts competitive bids in ascending order in terms of their yields (lowest to highest) until the quantity of accepted bids reaches the offering amount. All bidders, non-competitive and competitive, will receive the same rate or yield at the highest accepted bid.
How Does It Work?
The auction process is divided into the following three steps.
Who Can Participate?
All auctions are open to the public. The following Treasury services enable various categories of investors to participate directly:
- Institutional Investors