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The Canadian Treasury Bill Auction and the Term Structure of Interest Rates



This paper examines the efficiency of the Canadian treasury bill market as measured by the performance of the expectations model of the term structure of interest rates. In particular, market efficiency is shown to depend upon certain institutional features of the treasury bill auction process. Building on past work by Campbell and Galbraith (1997), the paper establishes links between rejections of efficiency and high absolute values of the spread between six and three month interest rates. The major contribution of the paper is to then show that a link exists between weeks in which spreads are large and weeks in which accepted auction yields show a large degree of dispersion. The paper discusses the implications of these findings for the term structure literature and for the reform of auction precedures currently in progress at the Bank of Canada and Department of Finance. Ce papier examine l'efficacité du marché des bons du trésor canadiens tel que mesurée par la performance du modèle de la structure par terme des taux d'intérêt. En particulier, l'efficacité du marché dépend de certaines caractéristiques institutionnelles du processus d'adjudication des bons du trésor. Se basant sur les travaux de Campbell et Galbraith (1997), le papier etablit des liens entre les rejets d'efficacité et les écarts élevés, en termes absolus, des rendements des titres à trois et six mois. La principale contribution du papier est alors de montrer qu'il y a un lien entre les semaines où ces écarts sont importants et les semaines où les rendements des offres acceptées à l'enchère sont fortement dispersées. Le papier discute les implications de ceci pour la littérature sur la structure par terme des taux d'intérêt et pour la réforme des procédures d'enchère actuellement en cours à la Banque du Canada et au Départment des Finances.

Suggested Citation

  • Lise Godbout & Paul Storer & Christian Zimmermann, 1999. "The Canadian Treasury Bill Auction and the Term Structure of Interest Rates," Cahiers de recherche CREFE / CREFE Working Papers 75, CREFE, Université du Québec à Montréal.
  • Handle: RePEc:cre:crefwp:75

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    References listed on IDEAS

    1. N. Gregory Mankiw & Lawrence H. Summers, 1984. "Do Long-Term Interest Rates Overreact to Short-Term Interest Rates?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(1), pages 223-248.
    2. Aman Ullah, 1988. "Non-parametric Estimation of Econometric Functionals," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 625-658, August.
    3. N. Gregory Mankiw & Jeffrey A. Miron, 1986. "The Changing Behavior of the Term Structure of Interest Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 211-228.
    4. Fama, Eugene F., 1984. "The information in the term structure," Journal of Financial Economics, Elsevier, vol. 13(4), pages 509-528, December.
    5. Walid Hejazi & Huiwen Lai & Xian Yang, 2000. "The expectations hypothesis, term premia, and the Canadian term structure of interest rates," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 133-148, February.
    6. Robert J. Shiller & John Y. Campbell & Kermit L. Schoenholtz, 1983. "Forward Rates and Future Policy: Interpreting the Term Structure of Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1), pages 173-224.
    7. Shiller, Robert J, 1979. "The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1190-1219, December.
    8. Campbell, Bryan & Galbraith, John W, 1993. "Inference in Expectations Models of the Term Structure: A Non-parametric Approach," Empirical Economics, Springer, vol. 18(4), pages 623-638.
    9. Campbell, Bryan & Galbraith, John W, 1997. "Non-parametric Regression Models of Deviations from Orthogonality in the Expectations Theory of the Term Structure," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(2), pages 265-284, May.
    10. Blinder, Alan S, 1997. "Is There a Core of Practical Macroeconomics That We Should All Believe?," American Economic Review, American Economic Association, vol. 87(2), pages 240-243, May.
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    Cited by:

    1. Bahamin, Payam & Cebula, Richard & Foley, Maggie & Houmes, Robert, 2011. "The Demand for Treasury Securities at Auction," MPRA Paper 52026, University Library of Munich, Germany.

    More about this item


    Term structure of interest rates; financial markets; central banks;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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