How the US Treasury Auctions work

Discussion in 'Financial Futures' started by Bernard111, May 14, 2005.

  1. During the last week the scheduled auctions partly decided how the treasuries patterned during the sessions.

    Clearly often the 'setup' long or short before these events have to be studied by a bond trader.

    I'm looking for detailed information about how the treasurys auctions work. The news talk about the hit ratio, direct and indirect bidders, etc and I know those definition but I suspect there are questions to be asked/replied to understand the scenario before and after an auction.

    - So what/where would you suggest to look for grasping some insights about they works and the relationships with the treasuries futures markets? Thanks!

  2. Dogfish


  3. Thanks for the suggestion, I will check into it.
    However it seems something more interesting for dealers trading treasuries cash than for futures bond traders.
    I'm more interested about how futures traders think before these auctions.
  4. Pabst


    What makes you think that Primary Dealer's aren't the major players in futures, particularly on auction days?

    If dealers get more bought at the window than they anticipated (they're generally working scaled bids) than they immediately sell contracts. If the auction goes well and dealers were shut out on the size they need then they'll lift futures. Or to complicate things, they may be short futures before the auction anticipating that the auction will go sloppy and that they'll be able to price the new issue at a discount. In that case they may actually BUY those futures back in the aftermath of what appears to be a poor auction. There's always multiple axes being grinded.:)
  5. Pbas,
    Thanks for your comments and clarifications:
    May you pleae better explain this?
    If dealers get more bought at the window than they anticipated (they're generally working scaled bids)>>

  6. Pabst !
  7. ig0r


    He's refering to a futures hedge put on by the dealers immediately after the cash auction. By scaled bids, Pabst is implying that a dealer will put in bids at various prices for varying amounts. If the price dropped significantly and the dealer picked up more paper than he anticipated, they will hedge this by selling futures (putting downward pressure on the market, of course). The same works vice versa, where if the dealer does not get enough at the auction they will simply buy futures.

    Consequently, the dealers take on a major role in the futures market - affecting all bond traders.

  8. ig0r, thanks for the clarification.
    I finally got it! :p

    Essentially we all need a Cantor or ICAP screen to deal with the scenario before the auctions! :D

    Any other insights about how to deal with the US treasuries auctions?
  9. Ebo


    Trade futures!
    Hedge vs options if need be.
    No need for a Cantor screen.
  10. #10     May 22, 2005