Stupid question on treasury direct

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dimbmw
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Stupid question on treasury direct

Post by dimbmw » Tue Oct 16, 2018 2:52 pm

H guys
I ve placed my first order in treasury direct (13 week bills), and i am a little worried about the fact that i havent entered any limit order. I just set the amount of money i am willing to invest. Also there was a mandatory check box that i agree to pay whatever price they offer be it less or more than a par value. So how do i know that i will end up paying a fair price? I am a newbie so sorry for a probably dumb question but i’d feel more comfortable to set a limit order.
Thanks

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tfb
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Re: Stupid question on treasury direct

Post by tfb » Tue Oct 16, 2018 2:58 pm

dimbmw wrote:
Tue Oct 16, 2018 2:52 pm
So how do i know that i will end up paying a fair price?
You will get the same price everyone else gets. That's just how the auction is designed. When you buy $1,000 you pay the same price as a bank buying $100 million.
Harry Sit, taking a break from the forums.

ofckrupke
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Re: Stupid question on treasury direct

Post by ofckrupke » Tue Oct 16, 2018 3:16 pm

tfb wrote:
Tue Oct 16, 2018 2:58 pm
dimbmw wrote:
Tue Oct 16, 2018 2:52 pm
So how do i know that i will end up paying a fair price?
You will get the same price everyone else gets. That's just how the auction is designed. When you buy $1,000 you pay the same price as a bank buying $100 million.
That addresses the matter of fairness vis a vis other buyers/bidders.
For the OP: wrt fairness of price between seller (UST) and buyers, this is delivered by the competitive bidding: the price struck will be the lowest that finds a willing buyer/bidder @price for every bond/note/bill offered. [Among the competitive bidders, some will get none, some (those who bid exactly the actual clearing price) will get a fraction of the quantity bid for, and some will get the full quantity bid for.]

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Phineas J. Whoopee
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Re: Stupid question on treasury direct

Post by Phineas J. Whoopee » Tue Oct 16, 2018 5:22 pm

OP: you placed a noncompetitive bid, in which one doesn't set a limit. That's the only type available through www.treasurydirect.gov.

This is a description of how Treasury auctions work.

For a 13-week bill, or for that matter any T-bill (newly-issued securities maturing in less than a year, including 52 weeks which is 364 days), the auction price is below par, because there are no coupon payments. The return comes from the face value paid upon maturity being higher than the original price.

If you have further questions, please ask.

PJW

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