DEFINITION of 'Direct Bidder'

An entity that purchases Treasury securities at auction for a house account rather than on behalf of another party. Direct bidders include primary dealers, non-primary dealers, hedge funds, pension funds, mutual funds, insurers, banks, governments and individuals.

BREAKING DOWN 'Direct Bidder'

The Treasury Department has permitted direct bidding on securities, both competitively and non-competitively, since auctions first came into use. Competitive bids require the direct bidder to specify the desired return, with the amount of securities won at auction depending on the highest competitive discount rate. A noncompetitive bid does not require the bidder to indicate a desired return. The Treasury accepts all noncompetitive bids, and then competitive bids in order of increasing yield.

After an auction has ended, the Treasury Department announces the dollar amount of securities purchased by primary dealers and other direct bidders, as well as indirect bidders. This information includes the amount purchased by each group. 

If organizations shift from bidding through primary dealers, referred to as indirect bidding, to bidding directly themselves, it can be more difficult for other primary dealers to gauge the level of interest in securities auctions. 

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