The U.S. Treasury changed the rules in 2009 concerning how it conducts its auctions, and the reason was the stockpiling of U.S. debt by China, according to a report that says that rule change substantially altered the configuration and bidding of the auctions.
Reuters reported Thursday that the rule change to the Uniform Offering Circular, published on June 1, 2009, eliminated the provision that allowed guaranteed bidding. Prior to the rule change, during weekly auctions by the Treasury's Bureau of the Public Debt, Treasuries sold in quantities ranging from $13 billion to $35 billion at a time were being purchased quietly and anonymously by China in sufficient amounts to affect the bidding on lots sold.
While investors can buy bonds directly from the Treasury at auctions, or through any of 20 elite "primary dealers," Wall Street firms authorized to bid on behalf of customers, China was cutting secret "gentlemen's agreements" with primary dealers through guaranteed bidding in which it would buy substantial quantities of Treasuries without being reported as the buyer. The primary dealers would purchase the securities, ostensibly for themselves, and then pass them on to the actual bidder upon issue.