Journal Issue
Working Paper Summaries (WP/94/77 - WP/94/147)

Summary of WP/94/135: “Treasury Bill Auctions: Issues and Uses”

International Monetary Fund
Published Date:
February 1995
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Academic and policy-oriented debate on the design of government securities auctions has intensified in recent years, motivated both by the desire for more cost-effective strategies to finance large stocks of government debt, and by the recognition that noncompetitive behavior may be a pervasive and costly feature of auctions of government securities around the world.

This paper reviews the main issues that arise in the design of treasury bill auctions, examining different aspects of auction design that may affect revenues from sale of government securities, such as the effect of the winner’s curse on bidders’ strategy and incentives to collude and corner markets. The analytical review is integrated with a survey of the relevant empirical literature. The paper’s main contribution is a detailed description of the actual design of treasury bill auctions in a sample of 42 industrial and developing countries. The format of these auctions is compared with the predictions of auction theory. The authors note the striking contrast between the preference granted by the theoretical literature to uniform-price auctions, and the overwhelming prevalence of the multiple-price format among actual auctions of treasury bills around the world.

The paper finds that most treasury bill auctions tend to be of the discriminatory type, that most governments remain rather secretive in publishing auction results (except in highly aggregate form), and that governments do not appear to promote the development of organized secondary and (especially) forward markets for treasury bills. A possible explanation is that, in most countries, concerns about cornering and collusion in treasury bill auctions have tended to dominate.

The authors argue that greater effort is needed--and is likely to be forthcoming--toward extending existing models of auctions to capture actual auction of government securities more accurately. Clearer understanding of the relative incentives to noncompetitive behavior in repeated, common-value auctions of divisible objects, and clearer understanding of how auctioneers can alter such incentives by modifying auction procedures, are thought to be likely goals of future research.

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