U.S. Treasury Auctions (A)

Abstract

The U.S. Treasury has been using multiple-price sealed-bid auctions to sell its bills since their introduction, in 1929. In this auction format, buyers submit confidential bids on the new securities and winning bidders pay the price of their own bid, typically resulting in different prices for different bidders. This traditional procedure came under sharp attack by several prominent economists when illegal manipulations by a trader at Salomon Brothers came to light in 1991. On September 3, 1992, the Treasury announced that it would conduct, as a pilot program, a single-price sealed-bid auction of its two-year and five-year notes for a limited period of time. In the single-price sealed-bid auction, participants submit confidential bids but, in contrast to the multiple-price auction, a single clearing price is determined that equalizes supply and demand. When the 1992 pilot program was extended until 1998, the majority of Treasury sales were conducted in the traditional multiple-price format and a decision on the usability of single-price auctions had yet to be made. See also the B (UVA-QA-0636) and C (UVA-QA-0637) cases.

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