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Market Demand for Treasury Securities
This paper presents an empirical analysis of market bid functions for Treasury bills and bonds in Norway, Switzerland and Israel. We found that:
(i) In spite of large fluctuations across auctions, it is possible to establish from data, an intertemporally stable market bid function. The latter has an S-shape and can be well approximated by a three parameter logistic curve. The fluctuations across auctions can be modeled as random shocks affecting the parameters of a fixed (logistic) structure that is intertemporally stable. These results are fully in accord with results obtained by Boukai and Landsberger (2000) using only the Israeli data.
(ii) Secondary market yields play a crucial role in determining market bid functions.
(iii) These properties are preserved under both, the uniform and the pay-your-bid auction rules.
(iv) In comparing the performance of the pay-your-bid auction rule and the uniform format, we show that auctioning bonds using the uniform format, resulted in large savings for the Norges Bank; about 24 basis points.
(i) In spite of large fluctuations across auctions, it is possible to establish from data, an intertemporally stable market bid function. The latter has an S-shape and can be well approximated by a three parameter logistic curve. The fluctuations across auctions can be modeled as random shocks affecting the parameters of a fixed (logistic) structure that is intertemporally stable. These results are fully in accord with results obtained by Boukai and Landsberger (2000) using only the Israeli data.
(ii) Secondary market yields play a crucial role in determining market bid functions.
(iii) These properties are preserved under both, the uniform and the pay-your-bid auction rules.
(iv) In comparing the performance of the pay-your-bid auction rule and the uniform format, we show that auctioning bonds using the uniform format, resulted in large savings for the Norges Bank; about 24 basis points.