The Effect of Treasury Auction Announcements on Interest Rates: 1990-1999

In this study we examine the secondary-market response of U.S. Treasury interest rates to the release of post-auction details from U.S. Treasury auctions and pre-auction auction supply announcements during the period of the 1990s. Rate changes are found to differ significantly on auction days. We find the release of bid-to-cover ratios affect interest rate movements of Treasuries while the volume of noncompetitive bids appear to have little affect on rates. Pre-auction announcements of auction volumes are shown to significantly affect rates, contrary with the findings of Wachtel and Young (1987). With respect to volatility, we employ a GARCH model to characterize the effect of auction data. We find volatility to be as much as 40% higher on auction days. By comparison, Federal Reserve policy announcements result in as much as a 130% increase in conditional volatility. These results provide evidence that, during the 1990s, the U.S. Treasury’s financing operations were conducted in a manner that exerted no more pressure on the market than that of many regularly-scheduled macroeconomic announcements.