Anomalous Bidding in Short-Term Treasury Bill Auctions

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Staff Reports

Anomalous Bidding in Short-Term Treasury Bill Auctions

May 2004 Number 184

JEL classification: G14, H63

Authors: Michael J. Fleming, Kenneth D. Garbade, and Frank Keane

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.

Available only in PDF PDF

21 pages / 157 kb

For a published version of this report, see Michael J. Fleming, Kenneth D. Garbade, and Frank Keane, "Anomalous Bidding in Short-Term Treasury Bill Auctions," Journal of Financial Research 28, no.2 (summer 2005): 165-76.

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