The Effect of 'Regular and Predictable' Issuance on Treasury Bill Financing

14 Pages Posted: 2 Mar 2017

See all articles by Paul Glasserman

Paul Glasserman

Columbia Business School

Amit Sirohi

Independent

Allen Zhang

Government of the United States of America - Department of the Treasury

Date Written: 2017

Abstract

The mission of Treasury debt management is to meet the financing needs of the federal government at the lowest cost over time. To achieve this objective, the U.S. Treasury Department follows a principle of “regular and predictable” issuance of Treasury securities. But how effective is such an approach in achieving least-cost financing of the government’s debt? This article explores this question by estimating the difference in financing costs between a pure cost-minimization strategy for setting the size of Treasury bill auctions and strategies that focus instead on “smoothness” considerations—interpreted here as various forms of the regular and predictable principle. Using a mathematical optimization framework to analyze the alternative strategies, the authors find that the additional cost of including smoothness considerations, expressed as the increase in average auction yield over the cost-minimization strategy, is likely less than one basis point. The cost gap narrows further when the flexibility to use a limited number of cash management bills is added.

Keywords: debt management, Treasury auctions, quadratic programming

JEL Classification: C61, G11, H63

Suggested Citation

Glasserman, Paul and Sirohi, Amit and Zhang, Allen, The Effect of 'Regular and Predictable' Issuance on Treasury Bill Financing (2017). Economic Policy Review, Issue 23-1, pp. 43-56, 2017, Available at SSRN: https://ssrn.com/abstract=2925729

Paul Glasserman (Contact Author)

Columbia Business School ( email )

3022 Broadway
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New York, NY 10027
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Amit Sirohi

Independent ( email )

Allen Zhang

Government of the United States of America - Department of the Treasury ( email )

1500 Pennsylvania Avenue, NW
Washington, DC 20220
United States

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