Treasury Reopening Auctions: How They Work, Bidding, and Taxes

A Treasury reopening auction sells an additional amount of a Treasury security that already exists, using the same coupon rate, maturity date, and CUSIP as the original issue. For a buyer, the security you receive from a reopening is legally and economically identical to one bought at the original auction. The rules sit in the Uniform Offering Circular at 31 CFR Part 356.¹ The Treasury uses reopenings to consolidate its debt into fewer, larger, more liquid issues rather than a proliferation of small ones.

What Gets Reopened and When

Not every Treasury maturity is reopened. The 2-, 3-, 5-, and 7-year notes are issued fresh each month. The securities that follow a reopening cycle are these:

The 10-year note is issued new each quarter and reopened in the two months that follow. A February original, for example, is reopened in March and April.²
The 20-year and 30-year bonds are issued new and reopened once in each of the following two months.²
5-year TIPS are issued new in April and October and reopened two months later, in June and December.
10-year TIPS are issued new in January and July and reopened twice, at two-month and four-month intervals.
30-year TIPS are issued new in February and reopened once, in August.
2-year floating rate notes are issued new quarterly and reopened in each of the next two months.³

Treasury publishes each reopening’s announcement days in advance, listing the CUSIP, the auction date, the issue date, and the offering amount.

Why the Price Is Rarely Par

Weeks or months usually pass between an original issue and its reopening, and market yields move in that time. If yields have fallen, the security’s fixed coupon looks generous and buyers pay a premium. If yields have risen, it sells at a discount.

A reopened note or bond has also been accruing interest since its last coupon payment. At settlement the buyer pays that accrued interest to Treasury on top of the price, then receives the full six-month coupon on the next scheduled payment date, which returns the prepaid amount. Notes and bonds use an actual/actual day count, so the accrual reflects the exact number of calendar days elapsed.¹

How to Bid

Individuals can buy through a TreasuryDirect account or through a bank, broker, or dealer.⁴ TreasuryDirect only accepts noncompetitive bids. To bid competitively, you need a broker or access to the Treasury Automated Auction Processing System (TAAPS), which is built for institutional participants.⁵ You’ll want a linked bank account funded before the issue date.

Noncompetitive Bids

A noncompetitive bid accepts whatever yield the auction produces and is guaranteed to be filled, up to $10 million per bidder.¹ For most individual investors, this is the simpler path.

Competitive Bids

A competitive bidder names the yield they’ll accept. There’s no dollar cap on the total you can bid, but a single bid at one yield can’t exceed 35% of the offering amount.⁶ If your yield is above the clearing yield, you get nothing. Competitive bids on standard notes and bonds must specify a yield of zero or higher, but TIPS accept negative real yields and floating rate notes accept negative discount margins.⁷

Deadlines

For note and bond auctions, noncompetitive bids must arrive by 12:00 p.m. Eastern on auction day, and competitive bids close at 1:00 p.m. Eastern. Late is late.

Settlement and Selling Before Maturity

Notes, bonds, and TIPS settle on calendar-based issue dates, often the 15th or the last day of the month. When that date lands on a weekend or federal holiday, settlement rolls to the next business day.⁸ On the issue date, Treasury debits your linked bank account for the price plus any accrued interest, and the security appears as a book-entry holding.

To sell before maturity, you have to move the security out of TreasuryDirect to a brokerage account. That requires transfer request form PD F 5511 E, signed before an authorized certifying officer at a bank, trust company, or credit union, along with the receiving broker’s book-entry delivery instructions (ABA routing number and safekeeping account). Once the security is in your brokerage account, your broker sells it on the secondary market like any other Treasury.

Taxes on a Reopened Security

Accrued Interest You Paid at Settlement

The accrued interest you paid at settlement isn’t a cost of the investment. It’s a prepayment that comes back to you in the next coupon, and the IRS treats it as a wash. On your return, report the full interest amount from your Form 1099-INT on Schedule B, then subtract the accrued interest you paid and label the subtraction “Accrued Interest” on the form.⁹ Skip the adjustment and you’ll pay tax on money that was simply returned to you.

Discount Purchases and Original Issue Discount

When a reopened security is issued at a discount to par, the tax outcome depends on how large that discount is. If it meets or exceeds a de minimis threshold, the discount is treated as original issue discount (OID) and must be reported as interest income spread over the remaining life of the security, not recognized at maturity.¹⁰ The threshold is 0.25% of par value times the number of complete years remaining to maturity.¹¹ On a $100,000 reopened 10-year note with nine complete years left, that works out to $2,250 (0.0025 × $100,000 × 9). A discount smaller than the threshold is treated as zero OID, and the gain is recognized at maturity or sale. IRS Publication 1212 has the tables and calculation guidance for Treasury securities.¹²

Premium Purchases

If you buy at a premium, you can elect to amortize that premium over the remaining life of the bond, using a yield-to-maturity calculation, and reduce reported interest income each year accordingly. The election, once made, applies to all taxable bonds you hold and later acquire, and it stays in place for all future years unless the IRS grants permission to revoke it.¹³ Without the election, the premium stays in your basis and you claim a capital loss when the bond matures at par.

Large Position Reporting

Most individual buyers can ignore this section. Entities with large holdings in a recently issued or reopened Treasury security can trigger reporting duties under 17 CFR Part 420. When Treasury calls for large position reports on a specific security, any entity whose position meets or exceeds the announced threshold must file with Treasury or the Federal Reserve Bank of New York by noon Eastern on the fourth business day after the announcement. The threshold is set for each security and published in the Federal Register, and it can never be less than 10% of the outstanding amount. For reopened issues, the calculation covers the combined original and reopened amounts. Entities controlling positions of $2 billion or more in a recently issued Treasury also carry recordkeeping duties whether or not a specific report has been requested.¹⁴

1
eCFR. 31 CFR Part 356 – Sale and Issue of Marketable Book-Entry Treasury Bills, Notes, and Bonds
2
TreasuryDirect. Schedule of Auction Reopenings
3
TreasuryDirect. Treasury Reopenings
4
TreasuryDirect. Buying a Treasury Marketable Security
5
TreasuryDirect. Additional Auction Related FAQs
6
eCFR. 31 CFR 356.12 – What Are the Different Types of Bids and Do They Have Specific Requirements or Restrictions
7
eCFR. 31 CFR Part 356 Subpart B – Bidding, Certifications, and Payment
8
TreasuryDirect. General Auction Timing
9
Internal Revenue Service. Instructions for Schedule B (Form 1040)
10
Federal Register. Reopenings of Treasury Securities and Other Debt Instruments – Original Issue Discount
11
GovInfo. 26 CFR 1.1273-2 – Determination of Issue Price and Issue Date
12
Internal Revenue Service. Publication 1212 – Guide to Original Issue Discount (OID) Instruments
13
Office of the Law Revision Counsel. 26 USC 171 – Amortizable Bond Premium
14
eCFR. 17 CFR Part 420 – Large Position Reporting