What Is a Non-Competitive Tender?
Let me explain what a non-competitive tender is: it's an offer you, as a non-institutional investor, can make to buy United States Treasury securities. You don't join the formal auction; instead, you accept the market price that others set. On the other hand, competitive tenders come from large institutional buyers who use a Dutch auction to establish that price.
Key Takeaways
As a smaller investor, you use a non-competitive tender to purchase Treasury securities. You don't set the price or terms; those come from the competitive bidding among big institutional players. You can buy anywhere from $10,000 to $500,000 worth at once through this method.
How Non-Competitive Tenders Work
The US Treasury sells trillions in securities each year to buyers ranging from massive organizations like primary dealer banks and foreign governments to individual retail investors like you. Instead of dealing with everyone directly, they run auctions with the big players and use those prices for smaller sales.
In 2019, for instance, they held 322 auctions issuing nearly $12 trillion. Large buyers bid on price and amount, and the Treasury accepts the lowest yields first to minimize interest costs, moving up until they've raised what they need. This sets the market value, and then you can buy at that price as a non-institutional investor.
There are clear benefits to this approach for you. You can avoid high brokerage fees by using the government's Treasury Direct platform. You get a fair price based on actual trading by institutions. Plus, the barriers are low: minimum $10,000, maximum $500,000 per tender.
Example of a Non-Competitive Tender
Consider how the Dutch auction works: the Treasury starts with a very low yield they know won't attract bids, then raises it gradually until offers come in, continuing until all securities are covered.
Institutional buyers submit these competitive tenders. Once the Treasury has enough, all winners get securities at the yield of the last successful bid.
Say one bidder accepts 0.10% yield, but the last one takes 0.30%—everyone with a winning bid gets 0.30%, even if they bid lower. That 0.30% then becomes the yield for your non-competitive tender as a smaller buyer. This way, the big players' bidding directly sets what you pay.
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