Most already-issued corporate, municipal,
and
U.S.
Treasury bonds
are traded over the counter in the bond
trading rooms of U.S. exchanges and brokerage firms around the
country. Bond brokers and dealers use electronic display terminals
that give them the latest price information and handle the transactions
by telephone. Typically, a buyer searches for a seller currently
offering the best price for a particular issue and calls to negotiate
the trade.
Brokerage firms who make a market in particular
bonds keep inventories on hand to sell to their own clients or
to brokers from other firms who are trying to fill an order. At
the same time, dealers working for the firm try to amass a supply
of bonds at the lowest possible prices.
In contrast,
U.S. Treasury bills
and notes
are sold competitively in a
Dutch auction.
That means the bids
offering to accept the lowest interest (which means they offer
to pay the highest prices) are accepted first, and the auction
continues at incrementally higher bids until the quota is filled.
The final bid becomes the auction rate, and all lower bidders
have their orders filled at that rate. Individual investors, who
make noncompetitive offers, also get the auction rate.
