How are US Treasuries issued?

US Treasury securities can be bought directly for accounts held with the US Treasury via TreasuryDirect.  TreasuryDirect is a web-based system established by the US Bureau of Public Debt that enables primary dealers and other financial market intermediaries, institutional and individual (private) investors to buy newly issued Treasury securities directly from the US Treasury, to hold the securities, to deposit and withdraw cash, and to buy new Treasuries as those that are currently held mature.

The yield of US Treasuries is determined at auction.  Bidding for US Treasuries takes place in two ways:

• Competitive bid – A bid submitted on a yield basis in the auction of securities with the bidder specifying the rate, yield or discount margin if awarded, limited to 35% of the offering amount for each bidder in a US Treasury auction.  A competitive bid may be filled in full if the specified yield is less than the discount rate set by the auction, awarded in less than the full amount if the bid equals the yield, or rejected if the yield is higher than the rate set at the auction.
• Noncompetitive bid – A bid submitted in an auction for securities based on quantity, where the bidder agrees to accept the rate, yield or discount margin determined at auction, limited to $5 million per auction in US Treasury auctions.  Noncompetitive bidding guarantees that the bidder will be awarded the bid in the full.

Primary dealers can also purchase Treasuries via accounts they have with the Federal Reserve Bank of New York.  The Treasury Automated Auction Processing System (TAAPS) is an electronic trading platform for the exclusive use of institutions that enables primary dealers to have direct access to Treasury auctions and to make purchases directly from the US Treasury, via a special account with the Federal Reserve Bank of New York's trading desk.  The system electronically receives and processes tenders sent into Treasury auctions and allows institutions to purchase marketable securities directly and reduce or eliminate intermediary costs.

Financial institutions clear and settle their purchases of newly issued Treasuries through the Federal Reserve.  The Federal Reserve commercial book-entry system (CBES) is A multitiered automated delivery-versus-payment (DVP) system operated by the US Treasury for purchasing, holding and transferring of marketable securities in which an investor’s ownership of securities is reflected on the records of the account at the depository institution or Federal Reserve bank where the account is maintained.