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Treasury auctions signal investor sentiment before the March FOMC

Treasury auctions signal investor sentiment before the March FOMC (Part 1 of 7)

Treasury auctions signal investor sentiment before the March FOMC

Treasury securities

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.

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Treasury securities can be marketable and non-marketable. Marketable securities are issued for the 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.

The US Treasury Department raised approximately $2.67 trillion at 267 auctions held in 2013. The US Treasury Department offers five types of marketable Treasury securities:

  1. Treasury bills or T-bills, which have a maturity of less than one year—one ETF that invests in T-Bills is the SPDR Barclays 1-3 Month T-Bill ETF (BIL)
  2. Treasury notes or T-notes, which have a maturity ranging from two to ten years—popular ETFs that invest in these debt instruments include IEF
  3. Treasury bonds or T-bonds, which have a maturity of 20 and 30 years—popular ETFs that invest in these debt instruments include TLT
  4. Treasury inflation-protected securities, or TIPS, which are currently issued for five-, ten-, and 30-year maturities—TIP is an ETF that invests in TIPS
  5. Floating rate notes (or FRNs) are the Treasury’s most recent issue (their first auction was held in January 2014), with a term-to-maturity of two years—the WisdomTree Bloomberg Floating Rate Treasury Fund (USFR) is a newly launched ETF by ETF sponsor and asset manager WisdomTree that invests in FRNs

To read more about Treasury auctions, move on to Part 2 of this series.

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