• US stock market daily report (June 09, 2015, Tuesday)

    Just as the U.S. Department of Justice Department (DOJ) was wrapping up a probe of the manipulation of foreign currency rates, they launched a probe on the U.S. Treasurys market. The US Treasury auctions - a secret process where interest rates are set for offerings - are the focus of the probe from the DOJ.

    US attorneys for DOJ are reportedly in the early stages of a probe into possible fraudulent manipulation of the $12.5 trillion Treasurys market.

    Over the past few months, government attorneys have reached out for information from at least three of the 22 financial institutions that act as primary government debt dealers.

    Currently there is no one central authority responsible for policing the Treasurys market in efforts to prevent illegal trading activity in what is the world’s largest, most active bond market.

    U.S. regulators said in a 1998 study of how the Treasurys market is regulated, safe and efficient trading of U.S. debt is “essential for the Department of the Treasury to borrow at the lowest possible cost and for the Federal Reserve System to effectively execute monetary policy.”

    The Treasury’s Debt Management Office has some responsibility for trading oversight however, Treasury has no authority to take enforcement actions against violators. The Treasury department can write rules, engage with market users and regulators such as the SEC, but remains powerless to go after anyone breaking its own rules.

    U.S. Treasurys are referred to as the most easily traded and trusted debt, around the globe. They are known as a bedrock of the U.S. financial system.

    Treasurys include bills, notes and bonds, with maturities ranging from a few weeks to as long as 30 years and, are sold through regular auctions.

    The sale of Treasurys raise money to fund the U.S. government. The interest rate attached to their sale, affects a range of borrowing costs including auto loans, corporate bonds, credit cards and home mortgages.

    After Treasury announces a debt sale, institutional investors place two kinds of bids competitive or non-competitive. Competitive bids can get as much as 35% of the issuance and non-competitive get a maximum of $5 million.

    Competitive bids are submitted on secret ballots by the investor which detail how much they are willing to pay for the debt. A higher price for a Treasury debt means a lower interest rate which signals stronger demand and confidence in the U.S. paying back its debt.

    Lower bids with lower sale prices mean higher interest rates which ultimately mean the expense will be passed on to taxpayers.

    Few U.S. Treasurys bids are ever made public.

    According to the most recent report from Treasury, US taxpayers owed $107 billion in debt, due to interest for 2015 from January through March. Much of that interest accumulated from the amount of interest that was set during the auctions.

    The Treasury Department issued some $7 trillion in debt for calendar year 2014.

    Contributed by Millennium Traders
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