Treasury Bill Auctions Research Articles

Investigating the Impact of COVID-19 Outbreak On Canada’S Government Treasury Bills

SARS-Cov-2 was first recorded in Wuhan, a town in the Hubei Province of China with a population of 11 million in December 2019, following a clear-cut outbreak of non-pneumonia. More than 200 countries and territories have now spread the virus around the globe, and the World Health Organization (WHO) identified it as a pandemic on 11 March 2020. On the economic front, COVID-19 contributed to a partial or absolute lockout in more than 200 nations.This has undermined the global supply chain and has contributed to a major decline in both economic growth and the values of financial assets. Canada is one of the countries afflicted by the outbreak with 731 000 cases and 18 622 deaths as of 21 January 2020. Vaccines have recently been created, but the surge of infection continues to escalate every day. On the socio-economic front, COVID-19 led more than 200 countries to a partial or absolute lockdown, interrupted global supply chains and led to a collapse in both economic growth and financial asset prices.The impact of COVID-19 is unclear because the public health crisis is still unfolding. There is limited amount of studies concerning this topic, because the crisis is still unfolding. The objective of this study is to investigate the impact of COVID-19 on Canada’s Treasury Bills. The author uses extreme bound analysis for market interpretation and sourced data from Bank of Canada and Our World in Data COVID-19, from January 1 to December 31 2020. The result of the study show that, Stringency Index have an impact on Canada’s 6-month Treasury bill auction average yield (V80691304) because of the robust relationship between them. Furthermore, 3 months Treasury bill auction average yields (V80691303) has positive correlation with 6months Treasury bill auction average yields (V80691304), 1-year Treasury bills auction average yields (V80691305), 3 months Treasury bills (V80691344), 6 months Treasury bills (V80691345), 1 year Treasury bills (V80691346) and a negative correlation with Government Stringency index (SI). Furthermore, 6months Treasury bill auction average yields (V80691304) has positive correlation with 3 months Treasury bill auction average yields (V80691303), 1-year Treasury bills auction average yields (V80691305), 1 month Treasury bills (V80691342), 3 months Treasury bills (V80691344), 6 months Treasury bills (V80691345), 1 year Treasury bills (V80691346) and a negative correlation with Government Stringency index (SI). Again, 1-year Treasury bills auction average yields (V80691305) has positive correlation with 3 months Treasury bill auction average yields (V80691303), 6months Treasury bill auction average yields (V80691304), 1 month Treasury bills (V80691342), 3 months Treasury bills (V80691344), 6 months Treasury bills (V80691345), 1 year Treasury bills (V80691346) and a negative correlation with Government Stringency index (SI).

Treasury bill auctions: Do bidders’ cost of funds and winning probability matter?

We model heterogeneous bidders’ bidding decisions and derive equilibrium solutions under both discriminatory and uniform price auctions. Under the assumptions that bidders’ cost of funds is uniformly distributed, and the winning probability is a linear decreasing function of the quoted price, we show that a revenue maximizing issuer should consider bidders’ cost of funds and winning probability when choosing the optimal auction mechanism.

Liquidity Shocks, Market Maker Turnover, and Bidding Behavior in Treasury Auctions

We use bid data from Argentinian Treasury bill auctions from 1996 to 2000 to study how banks' balance sheet and past performance affect bidding behavior. Exploiting variation in regulations for market making activity we show that when banks fear losing their market maker status, they bid more aggressively. They also bid more aggressively for existing securities that are reissued when the regulation tightens the requirements for secondary market participation. Consistent with regulations which imply that auctioned securities are not a prime source of liquidity, we find that banks which face liquidity needs bid less aggressively for them. A novel implication of our results is that in institutional settings that feature turnover of market makers, bidding behavior should be modeled in a dynamic setting. We introduce a dynamic model and show that static estimates over-predict true valuations when market makers may lose their status.

The impact of auction choice on revenue in treasury bill auctions – An empirical evaluation

I evaluate whether uniform price or discriminatory auctions are revenue-superior for selling Treasury bills. To this end, I apply two structural econometric models, Hortaçsu and McAdams (2010) and Fevrier et al. (2002), to a dataset on Polish zero-coupon bonds. My secondary aim is to analyze mutual inconsistencies in prediction from these models. I find that both agree on the revenue-superiority of discriminatory auctions, by between 0.01% and 1.5%; the models’ predictions are contradictory in only 7% of auctions. The large-scale agreement of two vastly different models gives confidence that the conclusions on Polish data are robust to varying many of the underlying economic and econometric assumptions, and not likely just a modeling artifact.

HIGH AND VOLATILE TREASURY YIELDS IN TANZANIA: THE ROLE OF STRATEGIC BIDDING AND AUCTION MICROSTRUCTURE

AbstractThe observed increase in the level and volatility of Tanzania's Treasury yields in recent years against an otherwise benign macroeconomic backdrop presented a puzzle for policymakers, while raising concerns about the fiscal burden of rising debt interest payments and diversion of bank credit away from the private sector. Using evidence from bid‐level data, and supported by a simple theorising of bidder incentives under unorthodox issuance practices, this paper traces the recent volatility in yields to the emergence of a sharp segmentation of the T‐bill market between sophisticated financial market players (foreign‐controlled banks) and a less‐experienced group of investors (domestic pension funds and small banks). An important policy recommendation that emerges is that public debt managers should avoid micro‐managing Treasury bill auctions by issuing amounts in excess of those offered or by dipping into oversubscribed segments of the yield curve, as such practices seriously disadvantage the less‐sophisticated (but more competitive) investors vis‐à‐vis the more sophisticated players.

Treasury bill auction procedures: Empirical perspectives from French market bid functions

We use empirical properties of market bid functions in Treasury bill auctions to analyze the Treasury auction mechanism. We propose an econometric method that exploits data from auction tables and we determine variables influencing the shape of market bid functions and their fluctuations across auctions. We apply the estimation procedure to discriminatory French Treasury bill auctions. We propose several applications of our empirical model. First, we provide a tool to forecast incoming auctions. Second, we measure, by simulations, the impact of different environments on auction rates. Third, we provide new empirical perspectives on the debate about the best procedure between the discriminatory and the uniform price auctions.

ANOMALOUS BIDDING IN SHORT‐TERM TREASURY BILL AUCTIONS*

AbstractWe 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.

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 fewer than seventy-two 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 a rate other than the minimum 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.

Behavioral Biases of Dealers in U.S. Treasury Auctions

This paper provides evidence of bounded rationality by large dealers in U.S. Treasury auctions. I argue that these dealers use a heuristic of yield-space bidding which leads to biases manifested in three ways: they submit dominated bids, i.e., those that could be improved without raising the bidding price; they bid in a manner that disregards the unevenly spaced price grid; and they round bids in yield space. Consistent with bounded rationality, I show that bidders are less susceptible to bias when the cost of suboptimal bidding is high. While the literature provides substantial evidence of behavioral biases among individual investors, they are less well documented for large sophisticated institutions that are likely to be important for setting asset prices. These primary bond dealers who regularly bid for billions of dollars in Treasury bill auctions are precisely such economic agents.

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 B. Campbell and J.W. Galbraith [Oxford Bulletin of Economics and Statistics 59 (2) (1997) 265–284], 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 possible auction configurations currently under consideration in Canada and the US.

Winner's Curse in Discriminatory Price Auctions: Evidence from Norwegian Treasury Bill Auctions

This paper studies bidder behavior using a very detailed data set consisting of actual bid distributions in Norwegian Treasury bill auctions held during 1993-1998. The empirical results presented suggest that observed bidder behavior is consistent with an adjustment for the winner’s curse/”champions plague”. Bidders shade and disperse their bids more, and reduce quantity demanded, when the number of competing bidders increases. On average, large, medium-sized and small bidders earn the same profits per NOK purchased. However, there are some evidence that bidder behavior differs across bidder types.

Profitability and Pricing in Treasury Bill Auctions: Evidence from Pakistan

Behaviour in the first three years of auctions for Pakistani treasury bills is studied. Bidding strategies rapidly converged to a consistent pattern after the auctions started in 1991. Factors that influenced the expected profitability of auction participation are identified. Auction participation was on average low and did not differ between types of bidders. Prices bids are found to reflect both ‘buy and sell’ and ‘buy and hold’ strategies, and were affected by risk considerations and bidder-specific variables. The Pakistani experience suggests the robustness of auctions as a market-based allocation mechanism, and their value in public debt management.

Day of the Week Effects in Turkish Stock and Money Markets

This study examines the daily seasonalities in emerging Turkish Stock and Money Markets. Within this framework, day-of-the-week-effects in overnight interest rate changes both in the Central Bank Interbank Money Market and the Istanbul Stock Exchange (ISE) Repo Market as well as in stock returns and liquidity at the ISE Stock Market are investigated. Results have shown the existence of significant day-of-the-week-effects both in overnight interest rate changes and stock returns. Overnight interest rates significantly fall on Wednesdays and increase on Mondays relative to the previous days. At the stock market, returns are significantly higher in the second part of the week and lower in the first two days of the week. Seasonalities in volatility and liquidity across the week confirmed the prior findings. Dynamic trading strategies based on the daily seasonalities in stock returns are able to produce significantly higher returns than market return of a simple buy and hold strategy in some periods neglecting transaction costs. Some evidences are documented for the relationship between the existence of day effect in overnight interest rates and Treasury Bill Auctions, institutional practices and the other factors which effect the liquidity conditions of the market creating the seasonality in liquidity. Findings support the procedure explanation for the day-of-the-week effect in stock returns due to the fact that significant differences and movements in stock returns, return/risk, and liquidity indicators are observed between different periods in which different settlement procedures are employed in the stock market. On the other hand, negative Monday returns disappear when the mean return of previous Friday is positive. Finally, these results have shown the existence of significant day-of-the-week-effects both in overnight interest rate changes and stock returns which is promising excess return for portfolio managers, and indicate that regulatory bodies of the markets, institutional practices and public authorities have an important creative impact on the seasonalities in stock and money markets.

Bidding Behavior in Treasury Bill Auctions: Evidence from Pakistan

Behavior in the first three years of auctions for Pakistani treasury bills is studied. Bidding strategies rapidly converged to a consistent pattern after the auctions started in 1991. Factors are identified that influenced the expected profitability of auction participation, which was on average low and did not differ between types of bidders. Prices bid are found to reflected both 'buy and sell' and 'buy and hold' strategies, and were affected by risk considerations and bidder-specific variables. The Pakistani experience suggests the robustness of auctions as a market-based allocation mechanism, and their value in public debt management.

Bidding Behavior in Treasury Bill Auctions: Evidence From Pakistan

Bidding Behavior in Treasury Bill Auctions: Evidence From Pakistan

Hedging Winner's Curse with Multiple Bids: Evidence from the Portuguese Treasury Bill Auction

Auctions of government securities typically permit bidders to enter multiple price-quantity bids. Despite the widespread adoption of this institutional feature and its use by bidders, the motivations behind its use and its effects on auction outcomes are not well understood theoretically and have been little explored empirically. This paper proposes that bidders use multiple bids to adjust for winner's curse: By spreading her bids, a bidder aligns her outcome more closely to the aggregate outcome of the auction. This hypothesis is tested using bidding data from treasury bill auctions in Portugal. I find that, ceteris paribus, a bidder submits a greater number of bids and disperses prices on these bids more widely when there is a greater potential for winner's curse. In particular, both these measures of bid-spreading increase with the volatility of market interest rates and the expected number of participating well-informed bidders.

Auctions and Posted Prices: Selling Treasury Bills

In many countries, treasury bills are sold using an auction mechanism. In addition, the treasury also offers the bills for sale after the auction, by posting a price equal to the winning bid in de preceeding auction. Only some players (typically market makers) may buy at this price, and only up to a fraction of the volume that is sold in the auction. At all times, these market makers keep the market for treasury bills liquid by quoting bid and ask prices at which they are willing to enter into a trade. We show that particular conditions exist where the treasury benefits from using a combination of auctions and posted prices, at the same time explaining some stylized facts in the empirical literature on treasury bill auctions.

Existence of equilibrium in a discriminatory price auction

In this paper, we examine a specific discriminatory price auction of Y divisible objects. Players have demand schedules for the objects and are allowed to bid any amount in the interval [0, Y]. This game describes the main features of Treasury bill auctions. We characterize the set of Nash equilibria of this game. In particular, Nash equilibria may not exist unless bidders face demand functions satisfying special restrictions. This result raises questions about using the theory of auctions of single objects to predict the outcome of multi-object auctions.

Treasury bill auction announcements and the transitory positive Tuesday return in the Treasury bond market

We analyse data from the Lehman Brothers Treasury bond indices and find a statistically significant positive Tuesday return in the Treasury bond cash market which is time sensitive. Our results are consistent with Johnston, Kracaw, and McConnell's (1991) findings for the T-bond futures market in that the positive Tuesday return exists in the post-1984 time period. We refine the analysis and find that the post-1984 positive Tuesday return is limited to 1985 and the first half of 1986, that it initiates in the second half of 1984, and that a significant positive Tuesday return also exists during the second half of 1982. We find that the positive Tuesday return is associated with periods of relatively sharp decreases in the general level of interest rates. We provide evidence that the Tuesday return of T-bonds is associated with the unanticipated information contained in the Tuesday T-bill auction announcement

On the optimality of Treasury Bill auctions

In this paper we examine a stylized version of Treasury Bill auctions. We show that if bidders are uncertain about the total amount being sold, as in actual Tbill auctions, there is a unique pure strategy Nash equilibrium. In this equilibrium the seller's revenue is maximized.