An Examination of Treasury Term Investment Interest Rates

[...]A key finding of our work is that for small auction sizes,TIO interest rates are fairly comparable to MBS repo rates forterm lengths of five days or more. However, shorter termlengths result in the Treasury receiving lower TIO rates relativeto market rates. We also observe a negative relationshipbetween the size of an auction and the spread between the TIOrate and the MBS repo rate. Finally, a more compressed auctionschedule, in which the Treasury announces and auctions TIOfunds on the same day, does not adversely affect TIO rates. Thisfinding suggests that banks are indifferent to more advancenotice of TIO auctions.Our study proceeds as follows. In Section 2, we providebackground information on the TT&L program, terminvestments, and repo transactions. Our data and ourregression framework are presented in Section 3, whileregression results can be found in Section 4. In Section 5,we draw conclusions.