3. Assume the following information about a Treasury Bill auction: Total to be a
ID: 2820202 • Letter: 3
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3. Assume the following information about a Treasury Bill auction: Total to be auctioned Total non-competitive bids $100,000,000 face value $ 45,000,000 face value $10,000,000 face value Federal Reserve purchase Competitive bids Bidder A Bidder B Bidder C Bidder D Bidder E S30,000,000 $35,000,000 $20,000,000 $50,000,000 $15,000,000 2.1 5% 2.67% 2.35% 2.25% 2.05% Answer the following concerning this auction of 91-day (13-week) T Bills. How much of the non-competitive bids and Federal Reserve bid will be filled? How much does this leave for the competitive bidders? A. B. How are the competitive bids allocated? Was any bidder short? Did any bidder C. What was the average yield for the non-competitive bidders? D. What was the stop yield? What was the tail? E. Assume that you were a non-competitive bidder for $100,000. Based on your or bidders get shut out? answer to C, what price did you pay for your T Bills? What was your discount yield (ia)? What was your bond equivalent yield (ibe)?Explanation / Answer
A. Non-competitive bids are submitted by small investors. All non-competitive bidders are for sure or guaranteed to receive securities. But a single non- competitive bidder will receive a limited securities of amount no more than $5 million.
Federal reserve bid will be filled with $10,000,000 face value.
Balance $85 million will be left for competitive bidders.
B. Competitve bids are usually done by big institutional investors and foreign investors. All the competitive bidders are restricted to get only 35% of the total amount of securities.
Yes the bidders were short. The bidders with lowest price and high yield was shut out.
C. Yield is inversly proportional to Price. The lower the yield, the higher the price bid will be. The bids with the lowest yield will be accepted and the bidder with the highest price i.e. $ 50,000,000 will be selected. So, the average yield will be 2.25%
D. The highest accepted yield is Stop yield i.e 2.25%. All the bids below this yield is accepted but the bids above the stop yield will be rejected.
Tail is the difference in "Highest yield during the auction" and "the expected high yield before the auction starts".
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