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Maturity Composition and the Demand for Government Debt

Jason Allen (), Jakub Kastl and Milena Wittwer

Staff Working Papers from Bank of Canada

Abstract: We analyze ways to reduce funding costs when issuing government debt, without changing the level of debt. Leveraging an institutional feature that auctions of different Treasury securities are held simultaneously, we propose and implement a method for estimating own- and cross-security demand elasticities, avoiding the usual endogeneity issues in demand estimation. We show that these elasticities, together with the auction format, determine how to optimally allocate debt across securities. Starting from an equal supply split between two securities, a government can save money by issuing more of the price-sensitive and less of the price-insensitive security in a discriminatory price auction, and vice versa in a uniform price auction.

Keywords: Debt management; Financial markets (search for similar items in EconPapers)
JEL-codes: C14 D44 E58 G12 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2020-07
New Economics Papers: this item is included in nep-mac
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Working Paper: Maturity Composition and the Demand for Government Debt (2022) Downloads
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