Reader Dan pointed out an interesting (well, kind of) research article [pdf] that, amongst other things, explains how Treasury auctions work. As stated on the Treasury Direct site, you can buy T-Bills through either a competitive or non-competitive bid. On the surface, it would seem that you would want to put in a competitive bid to get the best price. But it’s a little fuzzier than that. If you put in a noncompetitive bid, you are just about guaranteed a bill to buy. Everyone else put in a bid for what they are willing to pay, but may not get it.
After reading the article, I put together a little example on how the bidding process works. As usual, please point out my blunders.
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