Treasuries Fall Auctions Loom

Any Surprise that Friday before next week's Treasury Auction the rates are up significantly? Should not be. The Fed's decision to keep pre-announcing it's auctions has and continues to give the "Primary Dealers" in the market the ability to push up interest rates prior to the auction (pushing down the price) then miraculously after the auction, rates drop back down (with prices on the debt going up) allowing the 18 primary dealers required to bid at Treasury auctions to rake in easy profits.

I am very disconcerted by this practice ever since I first read about it some months ago. It is an absolute travesty that our government, the Fed and Treasury continue to feed the profits of a bunch of insolvent institutions on the backs of the taxpayer and now on the backs of other investors.

Of course you have seen the percentage of buying of these offerings by so called "indirect bidders" increase by a factor of 4 since late 2008. My unscientific findings of the percentage of uptake by "indirect bidders" are thus:

Last 3 months of 2008 = 15%
Jan 09 = 18%
Feb 09 = 24%
Mar 09 = 33.5%
April 09 = 38.5%
May 09 = 37.3%
June 09 = 43.8%
July 09 = 54%
Aug 09 = 62.5% (a Record)

It is nice to know the world of "indirect bidders" is not ignorant. They see "free money" and are taking an increasingly large portion of initial offerings. Are they then selling this supply back to the market for a quick profit? Are they being seduced into taking the product with guaranteed short term profit margins? Is it possible that no matter what is going on now that eventually the free ride will end and ultimately nobody will want to own the massive supply of debt being put out there right now?

I don't know the answers to these questions but I do get the sense that what the Treasury is doing is purposefully padding the profit margins and accounts of anyone who wants to "play" in the auctions. What their multiple motives are, I don't know. What the result is... Big short term profit margins, big short term commissions, big short term pay and bonuses for insolvent institutions, yes a BIG PAY DAY EVERY MONTH FOR THE SAME INSTITUTIONS THAT ARE SUPPOSED TO BE UNDER SUPERVISION AND WE ALL KNOW ARE INSOLVENT.

Yes, this is just another candle in the eye of the average American for the gain of institutional players on the "Wall Streets" of the planet... For now.

Here is a nice chart from the Treasury from previous years:Bidder Category Purchase Shares for

All Treasury Securities

Category	Mean	Standard Deviation	Minimum	Maximum
Primary dealer	70.9	14.6	33.6	100.0
Direct bidder	2.4	3.6	0.0	31.6
Indirect bidder	21.6	12.7	0.0	64.8
Noncompetitive	5.1	4.7	0.0	16.8

Source: Author’s calculations, based on data from the U.S.
Treasury Department.

Note: The table reports descriptive statistics of bidder category
purchase shares in percent for all 576 U.S. Treasury security
auctions between May 5, 2003, and December 28, 2005.