The Institutionalization of Treasury Note and Bond Auctions, 1970-75

Abstract

The substitution of auctions for fixed-price offerings was expected to lower the U.S. Treasury's cost of financing the federal debt. Despite this and other potential benefits, the Treasury failed in both 1935 and 1963 in its attempts to introduce regular auction sales of coupon-bearing securities. This article examines the Treasury's third and successful attempt between 1970 and 1975. The author identifies three likely reasons why the Treasury succeeded in the early 1970s: it closely imitated its successful and well-understood bill auction process, it extended the maturity of auction offerings gradually, and it was willing to modify the auction process when shortcomings became apparent.

Keywords: auction, subscription, exchange

JEL Classification: G28, H63