Keywords
treasury buybacks, illiquid debt, market impact costs
Abstract
We study an important recent series of buyback auctions conducted by the U.S. Treasury in retiring $67.5 billion of its illiquid off-the-run debt. The Treasury was successful in buying back large amounts of illiquid debt while suffering only a small market-impact cost. The Treasury included the most-illiquid bonds more frequently in the auctions, but tended to buy back the least-illiquid of these bonds. Although the Treasury had the option to cherry pick from among the bonds offered, we find that the Treasury was actually penalized for being spread too thinly in the buybacks.
Original Publication Citation
The U.S. Treasury Buyback Auctions: The Cost of Retiring Illiquid Bonds, with Bing Han and Francis Longstaff, Journal of Finance, Dec. 2007.
BYU ScholarsArchive Citation
Han, Bing; Longstaff, Francis A.; and Merrill, Craig B., "The U.S. Treasury Buyback Auctions: The Cost of Retiring Illiquid Bonds" (2007). Faculty Publications. 9115.
https://scholarsarchive.byu.edu/facpub/9115
Document Type
Peer-Reviewed Article
Publication Date
2007
Publisher
Journal of Finance
Language
English
College
Marriott School of Business
Department
Finance
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