In a Treasury auction, how is the price that a competitive bidder must pay determined in a single-price auction format?

What will be an ideal response?

The competitive bidder pays the price associated with the high yield. However, the price can differ slightly from par to reflect adjustments to make the yield equal to the high yield. More details are supplied below.

All bidders that bid less than the high yieldare awarded the amount that they bid. The Treasury will report what percentage someone will receive if their bid is equal to the high yield. For example, the Treasury might report: "Tenders at the high yield were allotted 50%." This means that if an entity bid for $10 million at the high yield that entity was awarded $5 million.

Now that the winning bidders are determined along with their allotment, the price can be set following the conventions of a single-price auction (because all U.S. Treasury auctions are single-price auctions).In a single-price auction, all bidders are awarded securities at the highest yield of accepted competitive tenders (i.e., the high yield). This type of auction is called a "Dutch auction." Thus, all bidders (competitive and noncompetitive) are awarded securities at the high yield.

The Treasury does not actually offer securities with a coupon rate equal tothe high yield because it adjusts the coupon rate and the price so that the yield offered on the security is equal to the high yield. This makes the yield a more common number (e.g., 3.025 becomes 3.000 and price can differ slightly from par.