The Effect of Auctions on Daily Treasury-bill Volatility

We investigate the Treasury bill (T-bill) market for volatility effects, and especially any volatility introduced by the T-bill auction process. We use daily T-bill yields for on-therun 13-, 26-, and 52-week T-bills from January 1983 through December 2000. We find that T-bill volatility is not constant across a run, hence is not consistent with the Treasury's auction process intent of a stable T-bill market. Additionally, we note that the daily volatility patterns of 13-week and 26-week T-bills are quite similar, while the daily volatility pattern in 52-week T-bills is clearly different. One fundamental difference with 52-week T-bills is the timing of its auction cycle. When 52-week T-bills were auctioned, they were auctioned every four weeks as opposed to every week, as is the case with 13and 26-week T-bills. In a unique test of the effect of auctions on daily volatility, we find that for 52-week T-bills issue-weeks demonstrate greater volatility than non-issue-weeks at the end of a run. We also find that all three T-bill series exhibit higher volatility on the day they begin to trade in the when-issued market, as opposed to the their day of issue.