Non-competitive bids

A non-competitive bid is a method of purchasing US Treasury securities without having to submit a price or yield. Non-competitive bids allow you to buy T-bills at the average accepted competitive bid in the auction.

Usually, all the competitive bids up to $1 million per investor and for Treasury bills auctions and $5 million for Treasury notes accepted which means that investors have secured their purchase.

There are two disadvantages in allocating a competitive proposal, less experimented investors may not want to calculate the yields, and could not accept the risk that those proposals weren?t accepted.

You can send a tender form to submit bids by mail or show up at the Federal Reserve Banks or branches before the auctions closing time. The competitive bids must be received at the arranged hour in the offering circular. The non-competitive bids that are sent by mail must be postmarked no later than midnight previous to the auction, and be received in or before issued date of the securities. Payment must be attached to the tender form.

After their proposal is accepted receive a confirmation receipt from the Federal Reserve and a payment, which is the difference between the tender amount submitted and the discounted price of the T-bills.

You can stipulate in the tender form whether you want the Federal Reserve to reinvest T-bills at maturity. If you do not choose this option, the Federal Reserve accredits your account of your T-bills in maturity with the amount at the time.

The advantage of purchasing directly your T-bills and keeping them up to maturity is that you can avoid paying commissions or fees. When you submit a competitive bid you always run the risk that your bid will not be accepted because of unanticipated fluctuations of money-market interest rates on the day of the auction.

Beginner Money Investing Competitive Bids Non-competitive bids