The design of Treasury bond auctions: some case studies

Introduction Bonds valued at many billions of dollars are sold in Treasury bond auctions each year. In terms of the total value of the items auctioned each year, Treasury auctions are among the world's most valuable auctions. The performance of these auctions in raising revenue has the potential to increase or reduce a government's cost of borrowing. Whether to use auctions to issue new government bonds, and, if so, which format to use, must therefore be a matter of great concern to governments. The issues which Treasury auctions raise are of more general relevance to other auctions. In particular, as the use of auctions in government policy becomes more widespread, the issues which are raised by Treasury auctions will need to be faced in other contexts too. On the other hand, it needs to be acknowledged that certain government auctions are quite different from Treasury auctions, and the considerations which are important for the design of these auctions are different from the considerations affecting Treasury auctions. We therefore begin this chapter with a discussion of the main features of Treasury auctions and the extent to which these are shared by other government auctions. A first important feature of Treasury auctions which determines the specific issues that need to be considered is that the typical bidder in a Treasury auction bids for very many identical units that are offered for sale rather than for just one unit.