By Michael S. Derby
A DOW JONES NEWSWIRES
COLUMN
NEW YORK (Dow Jones)--Amid the current
week's schedule of Treasury debt
auctions, one of the key factors keeping
investors biting their nails is the
performance of a measure called the
"indirect bid."
Many dealers and investors consider this
government measure, which they
understand to describe primarily foreign
central bank and both domestic and
foreign institutional buying, as the make
or break factor for a given auction's
success. If the indirect bidders show
up in force, the sale will go well. If
they don't, well, the outlook darkens.
Into the debate enters new research from the Federal
Reserve Bank of New
York, which published two new studies Wednesday - one
looking at the identities
of Treasury buyers at auctions and the other,
unrelated, at a program that
allows the government to lend excess cash to
banks for a rate set via auctions.
The key study, entitled
"Who Buys Treasury Securities at Auction?", finds
that Wall Street's
conventional wisdom surrounding the "indirect bid" measure
is largely
correct. Michael Fleming, the bank economist who wrote the study,
concludes
the category is "a fairly good proxy," if an "imperfect" one, for
those
trying to gauge buying by foreign investors.
Unfortunately,
Fleming's work is unable to break down this foreign buying
into its central
bank or private sector origins. Thus, an important question
remains
unanswered: how active are central banks in bidding at Treasury
auctions? The
economist tied this shortfall to a lack of data from the
government.
The focus on the indirect bid factor also obscures the fact
that primary
dealers, elite banks that do business directly with the Fed and
underwrite
government debt auctions, still take up the lion's share of
Treasury sales. And
in many cases, that inventory is then in part sold to the
foreign accounts that
as of 2005 held 30% - or $1.3 trillion - of all
outstanding marketable Treasury
debt, according to the study. Many of those
buyers are central banks.
Fleming notes that investors
eligible to be indirect bidders come from a
diverse pool. The category counts
non-primary dealers and brokers, private
retirement funds, along with the
foreign buyers. In the data that are
available, Fleming found that 46% of
average indirect bid at a Treasury sale
can be tied to foreign buyers. As for
the remainder of indirect bidders,
investment funds average 32%, while
non-primary dealer banks bring up the rear
at 18%. What's left over can be
attributed to other types of investors. The
analyst warned, however, that
"average allocations vary substantially across
issues."
Fleming's report found that Treasury data show that in all manner
of
government debt auctions, the primary dealer community represents the
lion's
share of buying. The government releases two series of data detailing
the
auction buying, and according to the "bidder" data primary dealers on
average
buy 70.9% of publicly available Treasurys, while "investor" class
data show
those same dealers gobble up an average of 75.4% of publicly
available
government debt.
The second study found that
Treasury does obtain market rates under its
excess cash lending program,
known as the Term Investment Option program.
(Michael S. Derby, a special writer with Dow Jones Newswires, has covered
the
Federal Reserve since 2001. He also writes about bond markets and the
economy.)
-Michael S. Derby, Dow Jones Newswires;
201-938-4192;
michael.derby@dowjones.com
(END) Dow Jones
Newswires
02-07-07 1216ET
Copyright (c) 2007
Dow Jones & Company, Inc.
DJ info:
1043,4043
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FSN35288
ACFIKMT COMMENTS CURRENCY ECONOMY FINANCIAL GENERAL
2007-02-07 17:16:32
UTC
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