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The Demand for Treasury Securities at Auction

Author

Listed:
  • Bahamin, Payam
  • Cebula, Richard
  • Foley, Maggie
  • Houmes, Robert

Abstract

This study empirically analyzes the demand for Treasury securities at auctions over the period October 1998 through July 2010 from the perspective of bid composition and the influence of demand at auction on the secondary market. The results show that the demand at auction, measured by bid dispersion, is positively related to the bid-to-cover ratio but is negatively associated with the percentage of accepted competitive bids as well as the percentage of noncompetitive bids. Post-auction returns are positively related to demand at auction. The findings suggest the existence of arbitrage opportunities resulting from the price discrepancy between the auction and the secondary market when the demand for Treasury securities at auction is high.

Suggested Citation

  • Bahamin, Payam & Cebula, Richard & Foley, Maggie & Houmes, Robert, 2011. "The Demand for Treasury Securities at Auction," MPRA Paper 52026, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:52026
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    References listed on IDEAS

    as
    1. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter.
    2. Godbout, Lise & Storer, Paul & Zimmermann, Christian, 2002. "The Canadian treasury bill auction and the term structure of interest rates," Journal of Banking & Finance, Elsevier, vol. 26(6), pages 1165-1179, June.
    3. Chatterjea, Arkadev & Jarrow, Robert A., 1998. "Market Manipulation, Price Bubbles, and a Model of the U.S. Treasury Securities Auction Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(2), pages 255-289, June.
    4. Nyborg, Kjell G. & Sundaresan, Suresh, 1996. "Discriminatory versus uniform Treasury auctions: Evidence from when-issued transactions," Journal of Financial Economics, Elsevier, vol. 42(1), pages 63-104, September.
    5. Kjell G. Nyborg, 2004. "Multiple Unit Auctions and Short Squeezes," The Review of Financial Studies, Society for Financial Studies, vol. 17(2), pages 545-580.
    6. Michael J. Fleming, 2007. "Who buys Treasury securities at auction?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 13(Jan).
    7. Cammack, Elizabeth B, 1991. "Evidence on Bidding Strategies and the Information in Treasury Bill Auctions," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 100-130, February.
    8. Goldreich, David, 2007. "Underpricing in Discriminatory and Uniform-Price Treasury Auctions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(2), pages 443-466, June.
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    More about this item

    Keywords

    Treasury securities; primary market bidding; secondary market bidding;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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