Bid Shading and Bidder Surplus in the U.S. Treasury Auction System

38 Pages Posted: 20 Nov 2017 Last revised: 23 Aug 2024

See all articles by Ali Hortacsu

Ali Hortacsu

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Jakub Kastl

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Allen Zhang

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

Date Written: November 2017

Abstract

We analyze bidding data from uniform price auctions of U.S. Treasury bills and notes between July 2009-October 2013. Primary dealers consistently bid higher yields compared to direct and indirect bidders. We estimate a structural model of bidding that takes into account informational asymmetries introduced by the bidding system employed by the U.S. Treasury. While primary dealers’ estimated willingness-to-pay is higher than direct and indirect bidders’, their ability to bid-shade is even higher, leading to higher yield/lower price bids. Total bidder surplus averaged to about 3 basis points across the sample period along with efficiency losses around 2 basis points.

Suggested Citation

Hortacsu, Ali and Kastl, Jakub and Zhang, Allen, Bid Shading and Bidder Surplus in the U.S. Treasury Auction System (November 2017). NBER Working Paper No. w24024, Available at SSRN: https://ssrn.com/abstract=3074202

Ali Hortacsu (Contact Author)

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
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773-702-5841 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Jakub Kastl

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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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