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Treasury Auction Bids and the Salomon Squeeze



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    • University of California, Los Angeles and University of Illinois at Urbana-Champaign. I would like to thank Jim Brandon, Michael Brennan, Brad Cornell, Darrell Duffie, Francis Longstaff, Jill Ousley, Jerome Powell, Gary Rasmussen, René Stulz, Suresh Sundaresan, Sheridan Titman, Bruce Tuckman, and an anonymous referee for helpful comments and/or discussions. Phong Chan, Karen Gess, and Ravi Jain provided excellent research assistance. This research was partially supported by a UCLA Faculty Career Development Award and a research grant from the UCLA Academic Senate. I am solely responsible for any error in this paper.


Recent press accounts claim that collusion is common practice in Treasury auctions and that as a result the auction profits are excessive. But, this paper finds that the auction prices are on average marginally higher than the secondary market bid prices. The auction profits, however, are systematically related to the total fraction of winning bids tendered by banks and dealers. The postauction prices of the two-year notes in which Salomon Brothers had a 94 percent holding are also examined. The secondary market prices of these notes were significantly higher than the estimated competitive prices in the four-week postissue period.

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