8:03 PM » Indirect Bidding Change: Hat Tips to SC and AT
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By Min Zeng Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)–The recent sharp rise in demand for U.S. Treasury debt from buy-side investors, including foreign central banks , is partly the result from a recently implemented change in Treasury security auction rules. The so-called indirect bids, a term used to describe broad interest from buyers both domestic and international, have crept up in recent auctions since the revisions to the rules became effective on June 1. Under the old rules, many orders from investors executed through the primary dealer banks that trade directly with U.S. Federal Reserve were counted as bidding from dealers, not indirect bids. The new rules will help get more detail, and statistically show higher interest from foreign lenders, some of whom have questioned their U.S. debt holdings. Getting a better sense of investors’ appetite, especially overseas, is imperative to the U.S. government at this critical time when it needs to sell record amounts of debt in order to tackle surging budget deficits and fund massive stimulus programs to get the economy back on track. Some big creditors such as China, Russia and Brazil have expressed concern about the value of their dollar-denominated holdings because they are worried that swelling public debt and aggressive monetary policies from the Fed may generate inflation down the road and weaken the U.S. currency. That, in turn, may put their massive Treasury holdings at risk of sharp losses. The revised rule, published in the Treasury’s Bureau of the Public Debt’s Web site, eliminates a provision related to “guaranteed bid” arrangements that was intended for multiple-price auctions, a type of auction that was discarded at least a decade ago. Treasury officials didn’t respond to requests for comments. In a guaranteed bid, a foreign central bank or institutional investor gives a certain amount of money to a primary dealer, who is required to bid on U.S. government debt auctions. The dealer then bids aggressively...