The auctions of Swiss government bonds: should the Treasury price discriminate or not?

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The auctions of Swiss government bonds: should the Treasury price discriminate or not?

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Daniel Heller
Yvan Lengwiler

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Yvan Lengwiler

Abstract

Ever since Friedman's (1960) contribution, there has been an ongoing controversy about whether the Treasury should auction off its government debt with a discriminatory or with a uniform price format. Many industrialized countries, the United States or Germany, for instance, use discriminatory auctions, while Switzerland applies to uniform price rule. Using recent contributions to multi-unit auction theory, we analyze data on the bids submitted to Swiss Treasury bond auctions over the last three years. We then construct hypothetical bid functions that would occur under price discrimination. Based on these bid functions, we determine which auction format minimizes the government's costs of financing its debt.

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Publisher Info
Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1998-11.

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Date of creation: 1998
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Handle: RePEc:fip:fedgfe:1998-11

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References listed on IDEAS
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Nautz, D., 1995. "Optimal bidding in multi-unit auctions with many bidders," Economics Letters, Elsevier, vol. 48(3-4), pages 301-306, June. [Downloadable!] (restricted)
V.V. Chari & Robert J. Weber, 1992. "How the U.S. Treasury should auction its debt," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-12. [Downloadable!]
Noussair, Charles, 1995. "Equilibria in a Multi-object Uniform Price Sealed Bid Auction with Multi-unit Demands," Economic Theory, Springer, vol. 5(2), pages 337-51, March.
Wilson, Robert, 1979. "Auctions of Shares," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 675-89, November. [Downloadable!] (restricted)
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. [Downloadable!] (restricted)
Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 6(4), pages 733-64. [Downloadable!] (restricted)
Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, vol. 49(6), pages 1477-99, November. [Downloadable!] (restricted)

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Kjell SunnevÃ¥g, 2001. "Auction design for the allocation of multiple units of a homogenous good: Theoretical background and practical experience," University of California at Santa Barbara, Economics Working Paper Series wp4-01, Department of Economics, UC Santa Barbara. [Downloadable!]
Rhee, S. Ghon, 2001. "Further Reforms of the JGB Market for the Promotion of Regional Bond Markets," CEI Working Paper Series 2001-14, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
Keunkwan Ryu & Gyung-Rok Kim & Seonghwan Oh, 2004. "Discriminatory vs Uniform Price Auction: Auction Revenue," Econometric Society 2004 Far Eastern Meetings 539, Econometric Society. [Downloadable!]
Skully, David W., 1999. "The Economics Of Trq Administration," Working Papers 14584, International Agricultural Trade Research Consortium. [Downloadable!]
Sara Castellanos, 2001. "A New Empirical Study of the Mexican Treasury Securities Primary Auctions: Is there more underpricing?," Levine's Working Paper Archive 625018000000000206, David K. Levine. [Downloadable!]
Sara Castellanos, 2001. "Mexican treasury securities primary auctions," Theory workshop papers 357966000000000025, UCLA Department of Economics. [Downloadable!]
Rhee, S. Ghon, 2000. "Further Reforms after the "BIG BANG": The Japanese Government Bond Market," CEI Working Paper Series 2000-3, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]

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