Anomalous Bidding In Short-Term Treasury Bill Auctions
We show that Treasury bill auction procedures create classes of price-equivalent discount rates for bills with less than 72 days to maturity. We argue that it is inefficient for market participants to bid at a discount rate that is not the minimum rate in its class. The inefficiency of bidding at other than the minimum rate is related to a quantity shortfall rather than an unexploited profit opportunity. Auction results for weekly offerings of four-week bills and occasional offerings of cash management bills show that market participants frequently bid at inefficient rates. However, they are more likely to bid at efficient rates than chance would suggest. 2005 The Southern Finance Association and the Southwestern Finance Association.
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Volume (Year): 28 (2005)
Issue (Month): 2 ()
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References listed on IDEAS
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- 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.
- Spindt, Paul A. & Stolz, Richard W., 1992. "Are US treasury bills underpriced in the primary market?," Journal of Banking & Finance, Elsevier, vol. 16(5), pages 891-908, September.
- 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.
- Michael J. Fleming & Kenneth D. Garbade, 2002. "When the back office moved to the front burner: settlement fails in the treasury market after 9/11," Economic Policy Review, Federal Reserve Bank of New York, issue Nov, pages 35-57.
- Jegadeesh, Narasimhan, 1993. " Treasury Auction Bids and the Salomon Squeeze," Journal of Finance, American Finance Association, vol. 48(4), pages 1403-19, September.
- Goldreich, David, 2003. "Underpricing in Discriminatory and Uniform-Price Treasury Auctions," CEPR Discussion Papers 4105, C.E.P.R. Discussion Papers.
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