DEFINITION of 'Indirect Bidder'

An entity that purchases Treasury securities at auction through an intermediary, such as a dealer or bank. Indirect bidders include financial institutions, such as foreign central banks, but can also include domestic money managers making bids through primary dealers.

BREAKING DOWN 'Indirect Bidder'

The Treasury Department permits indirect bidding on a competitive and a noncompetitive basis. Competitive bids require the direct bidder to specify the desired return, with the dollar 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 by indirect bidders.

Treasury note purchases by indirect bidders are used as a proxy for investments made by foreign investors. They help the Treasury Department gauge the willingness of foreign banks to continue purchasing Treasury securities. Foreign entities make up a significant portion of the owners of outstanding Treasury securities, so the willingness of these organizations to continue buying securities has a major impact on the ability of the Treasury to raise funds. 

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