Treasury Admits Auction Error
As clerical errors go, it may go down as one of the biggest in the annals of government bookkeeping: the U.S. Treasury said it sold $4.35 billion more in short-term bills Monday than it originally had thought.
The Treasury Department’s Bureau of Public Debt said it made a rare “clerical error” in its usually routine auctions of short-term Treasury bills--it understated bids for its 13-week and 26-week securities by $1.70 billion and $2.65 billion, respectively.
That meant that instead of selling $28 billion in Treasury bills, as originally believed, Treasury actually sold $32.35 billion. Investors had offered a total of $63.25 billion for the bills.
Treasury gave no further comment on the problem, describing it only as a clerical error. Treasury said the rates at which the bills were sold--the component most closely watched by Wall Street debt traders--were not affected by the mistake.
Though $4.35 billion is hardly spare change, the fact the error was not uncovered until later in the day underscores the sheer size of the U.S. Treasury market.
The Monday afternoon auctions of three- and six-month bills are often eagerly awaited by Wall Street to help give direction in trading of U.S. debt securities. Investors submit bids to the Treasury, usually through the Federal Reserve Bank of New York, by 1 p.m. Eastern time. Treasury then accepts or rejects the individual bids, depending upon whether they fall above or below the rate needed to sell a predetermined amount of securities.
On a slow day, a weak auction can further deflate the market, while on a busy day the auctions may go largely unnoticed. Because of their importance to the financial markets, auction results have in the past been amended only on an extremely rare basis.
On Monday, the bill auction took place in the morning, due to the U.S. bond market’s early close for the New Year holiday. Also, in recent months, the Treasury has tried to speed up the results process, narrowing the gap between when the bids are tabulated and when the results are released. It is unknown, however, if either of those factors played a part in Monday’s mistake in reporting some bids.
Interest rates on short-term bills fell in Monday’s auction.
The Treasury Department sold $14.7 billion in three-month bills at a discount rate of 1.710%, down from 1.720% last week. An additional $17.7 billion was sold in six-month bills at a rate of 1.800%, down from 1.850%.
Both the three-month and six-month rates were the lowest since Dec. 10, when the bills sold for 1.675% and 1.765%, respectively.
The new discount rates understate the actual return to investors--1.740% for three-month bills with a $10,000 bill selling for $9,956.80 and 1.842% for a six-month bill selling for $9,908.50.
