The Primary-dealer intermediated US Treasury issuance model is well-known to virtually everyone (and if it isn’t, today the TBAC has released a convenient presentation explaining all the nuances for those who may not be familiar with all the aspects of just how the US Treasury auctions off bonds). But how does the rest of the developed world fund its budgeting needs? The following table from the TBAC presentation provides all the answers.
More from TBAC:
- Most countries with PDs have anywhere from 5 to 25 PDs at any one time. 5 PDs appears to be a minimum number to ensure competition among PDs and to avoid collusion or moral hazard. A large number of PDs can dilute the benefits that accrue to PDs; benefits that are critical in inducing PDs to perform the responsibilities. Countries with large borrowing needs and/or high debt-GDP balances can generally support a larger number of PDs.
- The PD system in the U.S. appears well-suited to the mix of securities now being auctioned by Treasury. Other G-7 countries use syndications to sell less conventional securities like foreign-denominated bonds and ultra-long instruments. If Treasury decides to issue unconventional securities to further diversify their investor base, then syndications should be considered.
- Syndicated deals in the EU are typically timed for periods when institutions tend to be cash rich. Since Treasury is a frequent borrower and auction statistics tend to be consistent over time, seasonal syndicated deals do not appear necessary in the current environment.
- Most EU countries come with 1-3 syndicated deals per year. Since Treasury likes to be a consistent and reliable borrower, periodic and/or opportunistic syndicated deals would not fit Treasury’s stated goals.
- The UK supplements gilt auction sales with other distribution methods such as syndications (long-dated gilts and index-linked gilts), mini-tenders (to supplement shortfalls in syndications) and their Post Auction Option Facility or PAOF (which allows auction bidders to acquire up to an additional 10% of their auction allocation within a 2 hour period after each auction). Treasury often adjusts T-Bill issuance to changing cash flow needs so such ‘top-up’ schemes are generally not needed.
- In Japan most JGB’s are sold via competitive price auctions; the last syndicated JGB deal was in the 1990’s. Some JGB auctions are non-competitive and designed for retail investors (minimum of JPY 10,000 and no upper limit) and Japan also has an OTC sales system for 2yr, 5yr and 10yr maturities where the price is set by the MOF and where there is a maximum allotment of JPY100 mln per individual application.
And the full TBAC presentation highlighting the “The U.S. Primary Dealer debt distribution model: benefits and challenges” (pdf)