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The institutionalization of treasury note and bond auctions, 1970-75

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  • Kenneth D. Garbade

Abstract

The substitution of auctions for fixed-price offerings was expected to lower the U.S. Treasury's cost of financing the federal debt. Despite this and other potential benefits, the Treasury failed in both 1935 and 1963 in its attempts to introduce regular auction sales of coupon-bearing securities. This article examines the Treasury's third and successful attempt between 1970 and 1975. The author identifies three likely reasons why the Treasury succeeded in the early 1970s: it closely imitated its successful and well-understood bill auction process, it extended the maturity of auction offerings gradually, and it was willing to modify the auction process when shortcomings became apparent.

Suggested Citation

  • Kenneth D. Garbade, 2004. "The institutionalization of treasury note and bond auctions, 1970-75," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 29-45.
    • Handle: RePEc:fip:fednep:y:2004:i:may:p:29-45:n:v.10no.1
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    References listed on IDEAS

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    2. Cecchetti, Stephen G, 1988. "The Case of the Negative Nominal Interest Rates: New Estimates of the Term Structure of Interest Rates during the Great Depression," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1111-1141, December.
    3. Goldstein, Henry N & Kaufman, George G, 1975. "Treasury Bill Auction Procedures: An Empirical Investigation: Comment," Journal of Finance, American Finance Association, vol. 30(3), pages 895-899, June.
    4. Henry Goldstein, 1962. "The Friedman Proposal for Auctioning Treasury Bills," Journal of Political Economy, University of Chicago Press, vol. 70(4), pages 386-386.
    5. V. V. Chari & Robert J. Weber, 1992. "How the U.S. Treasury should auction its debt," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 16(Fall), pages 3-12.
    6. Boatler, Robert W, 1975. "Treasury Bill Auction Procedures: An Empirical Investigation: Comment," Journal of Finance, American Finance Association, vol. 30(3), pages 893-894, June.
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    Cited by:

    1. Basil Guggenheim & Mario Meichle & Thomas Nellen, 2019. "Confederation debt management since 1970," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 155(1), pages 1-23, December.
    2. Owen F. Humpage & Sanchita Mukherjee, 2013. "Even keel and the Great Inflation," Working Papers (Old Series) 1315, Federal Reserve Bank of Cleveland.
    3. Eric Tymoigne, 2014. "Modern Money Theory, and Interrelations Between the Treasury and Central Bank: The Case of the United States," Journal of Economic Issues, Taylor & Francis Journals, vol. 48(3), pages 641-662.
    4. Kenneth D. Garbade, 2020. "Managing the Maturity Structure of Marketable Treasury Debt: 1953-1983," Staff Reports 936, Federal Reserve Bank of New York.
    5. Ali Hortaçsu & Jakub Kastl & Allen Zhang, 2018. "Bid Shading and Bidder Surplus in the US Treasury Auction System," American Economic Review, American Economic Association, vol. 108(1), pages 147-169, January.
    6. Kenneth D. Garbade, 2019. "Federal Reserve Participation in Public Treasury Offerings," Staff Reports 906, Federal Reserve Bank of New York.
    7. Hughes, Michael P. & Smith, Stanley D. & Winters, Drew B., 2008. "The effect of auctions on daily treasury-bill volatility," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(1), pages 48-60, February.
    8. Jagannathan, Ravi & Jirnyi, Andrei & Sherman, Ann Guenther, 2015. "Share auctions of initial public offerings: Global evidence," Journal of Financial Intermediation, Elsevier, vol. 24(3), pages 283-311.
    9. Kenneth D. Garbade, 2017. "Beyond thirty: Treasury issuance of long-term bonds from 1953 to 1965," Staff Reports 806, Federal Reserve Bank of New York.

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