Profitability and Pricing in Treasury Bill Auctions: Evidence from Pakistan

Abstract

Behaviour in the first three years of auctions for Pakistani treasury bills is studied. Bidding strategies rapidly converged to a consistent pattern after the auctions started in 1991. Factors that influenced the expected profitability of auction participation are identified. Auction participation was on average low and did not differ between types of bidders. Prices bids are found to reflect both ‘buy and sell’ and ‘buy and hold’ strategies, and were affected by risk considerations and bidder-specific variables. The Pakistani experience suggests the robustness of auctions as a market-based allocation mechanism, and their value in public debt management.