The encyclopedia · Finance & Accounting · Financial decision · 1992–1998
US Treasury switched its debt auctions to uniform pricing after a six-year experiment
Treasury auctioned 2- and 5-year notes uniformly from Sept 1992, then switched all bills, notes and bonds to single-price auctions in Nov 1998.
U.S. Department of the Treasury
the move
The US Treasury sold most marketable debt through multiple-price auctions, where winning bidders paid their own bids. Theory predicted that would create a winner's curse and make bidders bid less aggressively.
In September 1992 the Treasury began a uniform-price experiment on 2- and 5-year notes: all winners paid the lowest accepted price. A 1998 Treasury study by Malvey and Archibald found uniform-price auctions produced a broader distribution of awards and more aggressive bidding, consistent with auction theory, and could reduce the cost of financing federal debt.
In November 1998, Assistant Secretary Gary Gensler announced the switch to uniform-price auctions for all marketable securities — bills, notes and bonds — citing the experiment's results, the consistency gain, and the reduction in financing costs.
why it works
- Paying the clearing price rather than your own bid removes the winner's curse.
- The 1992–1998 experiment gave the Treasury evidence before committing.
- One format across all maturities simplified the market and its participants' bidding.
what transfers
When buyers fear overpaying, they underbid for everyone — a uniform clearing price can improve both participation and results for a seller that runs repeated auctions.
what came after
The uniform-price format has remained standard for US Treasury auctions since 1998 and was adopted by many other sovereign issuers, becoming a textbook example of auction theory applied to public debt management.
references
- Remarks by Gary Gensler, November 1998 Treasury Quarterly Refunding (RR-2782)
- Uniform-Price Auctions: Update of the Treasury Experience (Malvey & Archibald, October 1998)
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