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How The Rest Of The World Sells Its Government Bonds

Tyler Durden's picture




 

The Primary-dealer intermediated US Treasury issuance model is well-known to virtually everyone (and if it isn't, today the TBAC has released a convenient presentation explaining all the nuances for those who may not be familiar with all the aspects of just how the US Treasury auctions off bonds). But how does the rest of the developed world fund its budgeting needs? The following table from the TBAC presentation provides all the answers.

More from TBAC:

  • Most countries with PDs have anywhere from 5 to 25 PDs at any one time. 5 PDs appears to be a minimum number to ensure competition among PDs and to avoid collusion or moral hazard. A large number of PDs can dilute the benefits that accrue to PDs; benefits that are critical in inducing PDs to perform the responsibilities. Countries with large borrowing needs and/or high debt-GDP balances can generally support a larger number of PDs.
  • The PD system in the U.S. appears well-suited to the mix of securities now being auctioned by Treasury. Other G-7 countries use syndications to sell less conventional securities like foreign-denominated bonds and ultra-long instruments. If Treasury decides to issue unconventional securities to further diversify their investor base, then syndications should be considered.
  • Syndicated deals in the EU are typically timed for periods when institutions tend to be cash rich. Since Treasury is a frequent borrower and auction statistics tend to be consistent over time, seasonal syndicated deals do not appear necessary in the current environment.
  • Most EU countries come with 1-3 syndicated deals per year. Since Treasury likes to be a consistent and reliable borrower, periodic and/or opportunistic syndicated deals would not fit Treasury’s stated goals.
  • The UK supplements gilt auction sales with other distribution methods such as syndications (long-dated gilts and index-linked gilts), mini-tenders (to supplement shortfalls in syndications) and their Post Auction Option Facility or PAOF (which allows auction bidders to acquire up to an additional 10% of their auction allocation within a 2 hour period after each auction). Treasury often adjusts T-Bill issuance to changing cash flow needs so such ‘top-up’ schemes are generally not needed.
  • In Japan most JGB’s are sold via competitive price auctions; the last syndicated JGB deal was in the 1990’s. Some JGB auctions are non-competitive and designed for retail investors (minimum of JPY 10,000 and no upper limit) and Japan also has an OTC sales system for 2yr, 5yr and 10yr maturities where the price is set by the MOF and where there is a maximum allotment of JPY100 mln per individual application.

And the full TBAC presentation highlighting the "The U.S. Primary Dealer debt distribution model: benefits and challenges" (pdf)

 

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Wed, 02/05/2014 - 12:59 | 4404318 SAT 800
SAT 800's picture

You have to admit it's a really pretty piece of paper.

Wed, 02/05/2014 - 13:15 | 4404350 BandGap
BandGap's picture

I like bondage.

Wed, 02/05/2014 - 13:19 | 4404362 Skateboarder
Skateboarder's picture

Please do enjoy this fine S+M Medley.

Wed, 02/05/2014 - 13:37 | 4404398 BandGap
BandGap's picture

Thank you, but that's a bit rough for these old bones.

I prefer this -

https://www.youtube.com/watch?v=36XvVnScFhQ

Old school.

 

 

Wed, 02/05/2014 - 13:47 | 4404431 Sudden Debt
Sudden Debt's picture

your wife calls it molesting

Wed, 02/05/2014 - 12:59 | 4404319 max2205
max2205's picture

Knew it

Wed, 02/05/2014 - 13:03 | 4404325 XAU XAG
XAU XAG's picture

Nice Gig ..........if we could all sell Bonds for our future earnings...........................oh wait.........that's a mortgauge or loan.................and GOV has already sold our asses down the road

Wed, 02/05/2014 - 13:45 | 4404347 TruthInSunshine
TruthInSunshine's picture

".........if we could all sell Bonds for our future earnings..."

Publicly traded corporations have been doing this for the last 4 1/2 year to the tune of 3.7 trillion USD by selling low yield bonds (thanks, Bernank!) and then using the revenue to buy their own shares back (adding to their debt but making execs on compensation-based-on-share price-performance very happy).

The "markets," "economy," "sovereign bonds," etc. are all one big interconnected Ponzi-Pyramid.

p.s. I can hardly wait to see if the 30 billion USD market cap company that is twitter managed to eke out a profit!

Wed, 02/05/2014 - 14:51 | 4404693 Boxed Merlot
Boxed Merlot's picture

making execs on compensation-based-on-share price-performance very happy...

 

 

Isn't this what Professor Black would call "control fraud"?  I was just a kid during the S & L crisis so I didn't really catch everything about what made that event so shameful.  It's quite evident now, however, that was child's play in comparison to the collusion between these (s)elected individuals.  The biggest travesty is the lack of even a cursory competent judiciary. 

 

Will we ever be fed up with the overfed fed?

 

 

Wed, 02/05/2014 - 13:04 | 4404328 DavrosoftheDaleks
DavrosoftheDaleks's picture

Aren't the mining companies of Bitcoin similar to the PD's?

Wed, 02/05/2014 - 13:15 | 4404352 Skateboarder
Skateboarder's picture

Great analogy. Fewer miners = more collusion and 'moral hazard.' More miners = dilution of 'benefits.'

Gotta hit that Satoshi sweet spot to strike a balance of virtual oligopoly.

Wed, 02/05/2014 - 13:46 | 4404425 SAT 800
SAT 800's picture

Now, you've done it; you're going to get a "fone" call.

Wed, 02/05/2014 - 13:07 | 4404332 highwaytoserfdom
highwaytoserfdom's picture

MyRa   new war bonds..... They want it all...    PD are TBTF welfare and ZIRP clowns.

Wed, 02/05/2014 - 13:09 | 4404335 RaceToTheBottom
RaceToTheBottom's picture

Everyone scrapping their fees off the top.

Wed, 02/05/2014 - 15:22 | 4404862 FrankDrakman
FrankDrakman's picture

and the rest of us scraping feces off our faces

Wed, 02/05/2014 - 13:11 | 4404339 Professorlocknload
Professorlocknload's picture

Why not go Postal? We could send our money in, con-gress could "borrrow it" replacing it with Treasury notes, just like Socialist Security.

s

Wed, 02/05/2014 - 13:17 | 4404359 sudzee
sudzee's picture

Stamps cost more than interest paid.

Wed, 02/05/2014 - 13:10 | 4404340 highwaytoserfdom
highwaytoserfdom's picture

MyRa   new war bonds..... They want it all...    PD are TBTF welfare and ZIRP Quigley clowns.

 

"The Rothschilds, and that class of money-lenders of whom they are the representatives and agents -- men who never think of lending a shilling to their next-door neighbors, for purposes of honest industry, unless upon the most ample security, and at the highest rate of interest -- stand ready, at all times, to lend money in unlimited amounts to those robbers and murderers, who call themselves governments, to be expended in shooting down those who do not submit quietly to being robbed and enslaved."

Quote by: Lysander Spooner
(1808-1887) Political theorist, activist, abolitionist
Source: "No Treason #6" (1870)        
Wed, 02/05/2014 - 13:13 | 4404348 LawsofPhysics
LawsofPhysics's picture

Precisely why you want your monetary system to be tethered to some real asset.  Something that can't be "created" out of thin air by a relative few, who enrich themselves and enslave the many.

Wed, 02/05/2014 - 13:42 | 4404405 TheGoldMyth
TheGoldMyth's picture

LawsofPhysics: The thin air to print currency illegally was then used to obtain a monopoly ownership on nearly all the assets you describe as real including gold. Tethering money to some real asset presents a real problem when the ownership is concentrated in the hands of the relatively few.
Apart from the criminal aspect of receiving stolen goods, how do you create a monetary reserve currency if the assets to back it are owned by the very criminals themselves? This much has never been confiscated/stolen by one class of criminal in the history of the world, ever.
The problem i see is how to prosecute?

Wed, 02/05/2014 - 13:14 | 4404354 Professorlocknload
Professorlocknload's picture

Lysander. He da man!   +++

Wed, 02/05/2014 - 13:10 | 4404342 LawsofPhysics
LawsofPhysics's picture

All paper is going to zero and all paper is created equal (of course some paper is "more equal" than other paper).

Hedge accordingly.

Wed, 02/05/2014 - 14:07 | 4404504 chdwlch1
chdwlch1's picture

Agreed. And even the infographic explicitly states that Japan paper is shit (under the 'Buybacks/Switches' column)...

"Buybacks done on a monthly basis recently focused on Linkers and Floaters; No switches"

Wed, 02/05/2014 - 13:11 | 4404346 skistroni
skistroni's picture

Greece doesn't.

Wed, 02/05/2014 - 13:19 | 4404361 Manipuflation
Manipuflation's picture

Those Italian bonds look like a great deal.

 

sarc on

Wed, 02/05/2014 - 13:30 | 4404388 Professorlocknload
Professorlocknload's picture

Dunno, Argentina's cookin' too.          S/cont.

Wed, 02/05/2014 - 13:21 | 4404367 dbTX
dbTX's picture

Greece calls Berlin.

Wed, 02/05/2014 - 13:50 | 4404427 falak pema
falak pema's picture

Money and politics don't mix and the US system has shown that up beyond redemption in this current conundrum going ballistic.

Moral Hazard is now viral as the ELECTED now belong to the Money Cabal.

And you guys who pretend to be in favour of the 99% still believe that by some miracle of an Austrian Shaman you will change the power workings of  this awesome hegemonical takeover of the world economy by Mr Moneybags cabal of the 0.001 %.

"You cannot be serious"... as Big McEnroe would have said! 

Wed, 02/05/2014 - 14:12 | 4404525 buckethead
buckethead's picture

It occurs to me that a more Ukrainian tact might be necessary. Then again, I doubt Ukraine.gov has the firepower of the money cabal.

Wed, 02/05/2014 - 20:38 | 4405171 falak pema
falak pema's picture

Putin only knows one line of argument with the Euro Ukraine lot of golden tressed Roxelane : Open your legs wide and it won't be statuary rape but a Femen saying : "come n get it you russian bear! Then the EU can stuff it 'cos I will be hailed as democrat who never acts like an autocrat!"

That's called Russian diplomacy, a variant of russian roulette, for those who have wet dreams of freedom.

Tact and fact; its all a question of how you ACT  !  

BUt then Putin is no worse than Assad or the Saud lot; way behind the DC lot ! 

They be in a class of their own ! Behind Google glasses of sophistication, OFCOURSE ! 

Wed, 02/05/2014 - 13:50 | 4404443 SAT 800
SAT 800's picture

"How the rest of the world sells its government bonds"---by using the "greater fool" theory?  Just guessing.

Wed, 02/05/2014 - 13:57 | 4404454 pirea
pirea's picture

"How the rest of the world sells its CRAP" maybe is better

Wed, 02/05/2014 - 14:10 | 4404518 buckethead
buckethead's picture

The deeper I delve, the more I realize how I understand nothing. It's all Greek to me. (Pun?)

Wed, 02/05/2014 - 14:54 | 4404711 Seize Mars
Seize Mars's picture

Well we all know for sure that life is getting worse by the minute. However there is one (and only one) bright spot: more people are waking up to the paper money scam. At least it's something.

Wed, 02/05/2014 - 16:13 | 4405144 Randoom Thought
Randoom Thought's picture

Right, a free market is not dependable when you need to fund an infinite level of government debt, which is required to exert infinite control.

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