PD = Primary Dealers, usually Big Bank type companies that have a "contract" with the Fed.
In the event that indirect bidders (usually, but not always foreign nations Central Banks) do NOT buy the T's offered at auction, the PD are REQUIRED
to buy them all.
PDs can bid the yield up if they feel there is not sufficient demand in the market to easily sell off what they're obligated to buy.
If they have bids from customers exactly equal to their obligation to buy, then we get a 2.0 Bid to Cover.
Below 2.0 means that the PD's end up with treasuries in inventory that aren't immediately sold on to customers.
The PDs are now drowning in Treasury debt.
This in turns causes the FED to monetize the debt. The circle-jerk goes like this:
FED loans PDs money to buy T's
PD buy T's
PD can't sell off all the T's it bought
FED loans more money to PDs to buy T's OR buys back the T's from the PDs
FED buys back it's (our) own debt = monetization of said debt
But capital is still being destroyed at a rate that outstrips the monetization.
We are quickly devolving into a state of Ouroboros - the snake that eats it's own tail...
Have a chat with the snake on how that turned out
Auctions for the remainder of the week:
7 year Notes, $28 billion (July 30th)
Also a 13 and a 26 week bill offering on Aug 3. The next schedule won't be out till Aug 5
[edit on 7/29/09 by redhatty]