Journal Article

Why the U.S. Treasury began auctioning Treasury bills in 1929

Abstract: The U.S. Treasury began auctioning zero-coupon bills in 1929 to complement the fixed-price subscription offerings of coupon-bearing certificates of indebtedness, notes, and bonds that it had previously relied upon. Bills soon came to play a central role in Treasury cash and debt management. This article explains that the Treasury began auctioning bills to mitigate flaws in the structure of its financing operations that had become apparent during the 1920s. The flaws included the underpricing of new issues to limit the risk of a failed offering; borrowing in advance of actual requirements, resulting in negative carry on Treasury cash balances at commercial banks; and the redemption of maturing issues in advance of tax receipts, resulting in short-term borrowings from Federal Reserve Banks that sometimes led to transient fluctuations in reserves available to the banking system and undesirable volatility in overnight interest rates.

Keywords: Treasury bills;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Economic Policy Review

Publication Date: 2008

Volume: 14

Issue: Jul

Pages: 31-47