Two Studies of Treasury Auctions - FEDERAL RESERVE BANK of NEW YORK

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Press Release

Two Studies of Treasury Auctions

February 7, 2007

Note to Editors

The Federal Reserve Bank of New York today released two publications regarding U.S. Department of Treasury auctions: "Who Buys Treasury Securities at Auction?" by Michael J. Fleming, and "An Examination of Treasury Term Investment Interest Rates," by Warren B. Hrung.

In "Who Buys Treasury Securities at Auction?" a study appearing in the New York Fed series Current Issues in Economics and Finance, the author argues that increased transparency in auction data, including detailed information on categories of bidders and instruments purchased, sheds light on the demand for government securities among certain investor groups, and that the more timely release of these data offers an early read on the allocation of securities. According to Fleming, data regarding purchases made by indirect bidders are a fairly good proxy for foreign purchases of Treasury notes, although no distinction is made between private investors and foreign central banks. Indirect bids are competitive bids submitted by third parties; they include bids by foreign and international monetary authorities placed through the Federal Reserve Bank of New York.

In "An Examination of Treasury Term Investment Interest Rates," an article forthcoming in the Bank's Economic Policy Review, the author reviews the Treasury's Term Investment Option (TIO) program, through which the Treasury lends excess cash balances for a specified number of days to banks at interest rates determined via single-rate auctions. Studying data from late 2003 to early 2006, the author finds that for small auction sizes
($2 billion or less), interest rates received by the Treasury through the TIO program are comparable to market rates when term lengths are five days or more. When term lengths are of shorter durations or the size of the auction is large, the Treasury tends to receive lower relative rates.

Michael J. Fleming is an assistant vice president in the Capital Markets Function of the Research and Statistics Group. Warren B. Hrung is a senior financial analyst in the Markets Group.

Who Buys Treasury Securities at Auction? ››
An Examination of Treasury Term Investment Interest Rates ››

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