What is a Direct Bidder

A Direct Bidder is 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. 

Each U.S. Treasury bill, note, bond, Floating Rate Note (FRN) or Treasury Inflation-Protected Security (TIPS) is sold at a public auction. 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. All successful bidders are awarded securities at the same price, which is the price that corresponds to the highest rate, yield, or discount margin of the competitive bids accepted.

Primary dealers purchase debt directly from the Treasury and re-sell it to their clients at a pre-determined price. For years, primary dealers comprised the majority of the participation in auctions but their dominance is declining. Their share of Treasury purchases declined from 68% in 2007 to 33% in 2012 and continue to shrink.

Requirements and Limitations of a Direct Bidder

To participate in a Treasury action, an entity or individual must simply submit a tender with a bid for the security they would like to purchase. In 2008, the bidding minimum was lowered from $1,000 to $100 for all marketable securities. Participants can bid either noncompetitively or competitively, but not both ways in the same auction.

The Treasury has allowed direct bidding for as long as it has conducted security auctions. Any entity or individual may bid directly as long as the entity or individual has made all the necessary arrangements for access to the Treasury Automated Auction Processing Systems (TAAPS) and has made proper arrangements for delivery and payment for auction awards. 

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.

Banks that serve as primary dealers were named in a 2017 lawsuit alleging that they conspired to share information on customer orders in order to rig Treasury auctions in their favor.