Revenue Implications of Multi-Item Multi-Unit Auction Designs: Empirical Evidence from the U.S. Treasury Buyback Auctions

We study an important recent series of multi-item multi-unit auctions conducted by the U.S. Treasury in retiring $67.5 billion of its debt. Consistent with auction theory, we find that bidders earn a small volatility-related expected profit as compensation for bearing the risk of the “winner’s curse.” We find that the Treasury is penalized for being “spread too thin” when including multiple bonds in a buyback auction. Thus, the multi-item design of the auction may not have been optimal from the Treasury’s perspective. In contrast, there is no evidence that the multi-unit aspect of the buyback affected the Treasury’s costs. These results have a number of implications for current models of multi-item and multi-unit auctions.