US Government and Agency Underwritings Flashcards
New issues of Treasury Bills are sold:
A. through selling syndicates
B. via weekly yield auction
C. through subscriptions placed by registered purchasers
D. via negotiated underwritings
The best answer is B.
New issues of Treasury Bills are auctioned each week by the Federal Reserve. The lowest interest rate bid (lowest interest cost to the government) wins the auction.
Once auctioned on Monday or Tuesday, Treasury Bills are issued to the winning bidders and must be paid for immediately following the auction date on the following:
A. Tuesday
B. Wednesday
C. Thursday
D. Monday
The best answer is C.
The Federal Reserve conducts Treasury Bill auctions weekly on Monday and Tuesday. The Bills are issued to the winning bidders, and must be paid for, on the Thursday immediately following the auction date.
Competitive bidders at Treasury Auctions would typically include all of the following EXCEPT:
A. Primary U.S. Government Dealers
B. Individuals
C. Money Market Mutual Funds
D. Pension Funds
The best answer is B.
Individuals generally place non-competitive bids at Treasury auctions. Competitive bids are placed by large U.S. Government securities dealers and by institutions.
In the weekly auction of Treasury Bills, which statement is TRUE?
A. Competitive bids are always filled
B. Non-competitive bids are only filled if there is sufficient supply
C. The Federal Reserve allocates securities from the lowest yields to the higher yields
D. The Federal Reserve allocates securities based on size of each order
The best answer is C.
In the weekly T-Bill auction, the amount of non-competitive bids is set aside from the total securities to be auctioned and is filled at the average winning rate. The remaining T-Bills to be auctioned are filled from the lowest interest rate bid on up. Once the issue is “sold out,” all of the winning bidders are filled at the highest interest rate bid that completed the sale (so all winning bidders get the same interest rate - this is a “Dutch Auction”). The remaining higher rate competitive bids are void.
Which statement is TRUE regarding bids placed at the Treasury Auction?
A. Competitive Bids are filled at inferior yields
B. Negotiated Bids are filled at superior yields
C. All filled bids receive the same yield
D. Only the highest interest rate bids are filled
The best answer is C.
At the weekly Treasury auction, non-competitive bids are always filled at the average winning yields of the competitive bids. Only the lowest interest rate competitive bids are filled; the higher rate competitive bids that exceed the amount of securities up for auction that week are rejected. All filled bids receive the same yield.
Which statement is TRUE regarding bids placed at the Treasury Auction?
A. Competitive bids are always filled
B. Non-competitive bids are always filled
C. Competitive bids are filled at better yields than non-competitive bids
D. Competitive bids are filled at worse yields than non-competitive bids.
The best answer is B.
At the weekly Treasury auction, the amount of securities claimed by non-competitive bids are “reserved” out of the auction and will always be filled at the completion of the auction at the winning auction yield. The primary dealers must place competitive bids for the balance of the securities that are being auctioned after the non-competitive bid amount has been set aside. The bids are accepted from low yield on up, until the amount of securities being auctioned is sold. All winning bidders are filled at the highest interest rate that completed the auction (this is known as a “Dutch auction”), as are the non-competitive bidders. Any competitive bids that are higher than the winning interest rate are not filled
In the weekly auction of Treasury Bills, which orders are always filled?
A. Competitive bids
B. Non-Competitive Bid
C. Bids from primary dealers
D. Negotiated bids
The best answer is B.
In the weekly T-Bill auction, the amount of non-competitive bids is set aside from the total securities to be auctioned and is filled at the average winning rate. The remaining T-Bills to be auctioned are filled from the lowest interest rate bid on up. Once the issue is “sold out,” all of the winning bidders are filled at the highest interest rate bid that completed the sale (so all winning bidders get the same interest rate - this is a “Dutch Auction”). Once the issue is “sold out,” the remaining higher rate bids are void.
An investor wishes to buy a new issue of U.S. Government agency bonds. You recommend that the customer purchase Federal Home Loan Bank bonds with a 20 year maturity. The new issue of Federal Home Loan Bank Bonds will be sold:
A. through competitive bid at the weekly Treasury Auction
B. directly by the Federal Home Loan Bank to interested investors
C. through a selling group appointed by the Federal Home Loan Bank
D. through the “Dutch” auction method that awards the bonds to the lowest rate bidders at an “average” winning rate
The best answer is C.
New issues of agency securities are sold through a selling group that is appointed by the Agency. The group typically consists of large banks and broker-dealers. The group sells the issue at par to the public. Out of the proceeds, a selling concession is paid to the selling group by the agency. Direct U.S. Government obligations are sold through auction.
New U.S. Government agency securities are:
A. underwritten via competitive bid and offered through selling groups
B. underwritten via negotiated offering and offered through selling groups
C. underwritten via competitive bid and offered through the Federal Reserve
D. underwritten via negotiated offering and offered through the Federal Reserve
The best answer is B.
Government agency securities are underwritten via negotiated offerings; not via competitive bid as is the case with U.S. Government issues. The agency assembles a selling group through which it offers the securities. It negotiates both the interest rate placed on the issue based upon the level of pre-sale orders received by the selling group; and the selling concession paid to the selling group for offering the securities to the public.
Which statement is TRUE regarding new issues of U.S. Government agency securities?
A. The securities are sold through a selling group appointed by the Agency
B. The securities are sold through a selling group appointed by the Federal Reserve
C. The securities are sold at a discount to par
D. The securities are sold at a par plus a mark-up
The best answer is A.
New issues of agency securities are sold through a selling group that is appointed by the Agency. The group typically consists of large banks and broker-dealers. The group sells the issue at par to the public.
Which statement is TRUE regarding new issue U.S. Government and Agency securities?
A. Agency securities are sold at auction conducted conducted by the Federal Reserve
B. U.S. Government securities are sold at auction conducted by the Federal Reserve
C. U.S. Government securities are sold at auction conducted by the Department of Treasury
D. Agency securities are sold at auction conducted by the Department of Treasury
The best answer is B.
U.S. Government securities are sold at auction conducted by the Federal Reserve. In contrast, agency securities are sold to the public through a selling group of broker-dealers assembled by the agency.
