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

Glasserman, Paul; Sirohi, Amit; Zhang, Allen

Journal Article

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

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.

Keywords: quadratic programming; debt management; Treasury auctions;

JEL Classification: H63; C61; G11;