Estimating Demand Systems for Treasuries

Milena Wittwer Jason Allen, Jakub Kastl - Jul 18, 2023

Working Paper No.   00111-00

Leveraging an institutional feature that Treasury auctions of different maturities are often held simultaneously, we propose  a method for estimating demand systems for Treasuries, avoiding the usual endogeneity issues in demand estimation. We implement our method using bidding data from Canadian T-bill auctions, and find that different types of T-bills are only weak substitutes, despite their cash-like nature. We provide a micro-foundation of  demand in the primary market to explain this finding, and illustrate  how demand elasticities, together with the auction format, determine how to  allocate debt on a given day across maturities. 

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