Treasury Auction Cuts Raise Risks for Dealers, RBC Says
The U.S. Treasury’s decision to reduce the amount of debt sold at two- and three-year note auctions may make it riskier for the banks and brokerage firms that are obligated to bid at the monthly offerings.
“Smaller auctions with volatile bids from direct and indirect bidders will make auctions trickier, as dealers deal with the shrinking pie,” said Michael Cloherty, the New York-based head of U.S. interest-rate strategy at the RBC Capital Markets unit of Royal Bank of Canada, one of the 22 primary dealers that trade with the Federal Reserve. “There will be greater swings in the amount available for dealers, which will make them hard” to value the securities before the sales. Read more on Bloomberg.