Competition in treasury auctions reduces bidder surplus, working paper finds

Increased competition in sovereign bond auctions considerably reduces bidder surplus, a working paper published by the National Bank of Austria argues.

In Competition in treasury auctions, Helmut Elsinger, Philipp Schmidt-Dengler and Christine Zulehner look at evidence from Austria’s experience after it joined the European Union in 1995.

Before then, only domestic banks could buy Austrian Treasury bonds, but bidding was opened to banks from all EU states after 1995.

The authors find the change substantially reduced bidder surplus. A “significant component of the surplus reduction is due to more aggressive bidding”, the authors say.

They find, however, the reduction would be slightly greater if the Austrian government adopted a hypothetical uniform auction format, rather than its existing discriminatory auction format.