how a bid auction works
for example suppose the treasury seeks to raise 9 million in one year t bills with a 5 discount rate the minimum amount you can buy a bill for is 100 although the most commonly sold bills have a par between 1 000 and 10 000 let s assume the competitive bids submitted are as follows 1 million at 4 79 2 5 million at 4 85 2 million at 4 96 1 5 million at 5 3 million at 5 07 1 million at 5 1 5 million at 5 5 the bids with the lowest discount rates will be accepted first since the government will prefer to pay lower yields to investors in this case since the treasury is looking to raise 9 million it will accept the bids with the lowest rates up to 5 07 at this mark of 5 07 only 2 million of the 3 million bid will be approved all bids below the 5 07 rate will be accepted and bids above will be rejected in effect this auction is cleared at 5 07 and all successful competitive and non competitive bidders receive the 5 07 discount rate on issue day treasury delivers t bills to non competitive bidders who made their submissions in a particular bill auction in exchange treasury charges the accounts of those bidders for payment of the securities the purchase price of the t bill is expressed as a price per hundred dollars 6correction april 6 2023 this article has been updated to correct the example of which bids would be accepted and rejected by the treasury 