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The effect of “regular and predictable” issuance on Treasury bill financing

Author

Listed:
  • Paul Glasserman
  • Amit Sirohi
  • Allen Zhang

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.

Suggested Citation

  • Paul Glasserman & Amit Sirohi & Allen Zhang, 2017. "The effect of “regular and predictable” issuance on Treasury bill financing," Economic Policy Review, Federal Reserve Bank of New York, issue 23-1, pages 43-56.
    • Handle: RePEc:fip:fednep:00040
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    References listed on IDEAS

    as
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    5. Balibek, Emre & Köksalan, Murat, 2010. "A multi-objective multi-period stochastic programming model for public debt management," European Journal of Operational Research, Elsevier, vol. 205(1), pages 205-217, August.
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    Cited by:

    1. Wolswijk, Guido, 2020. "Drivers of European public debt management," Working Paper Series 2437, European Central Bank.

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    More about this item

    Keywords

    quadratic programming; debt management; Treasury auctions;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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