The Institutionalization of Treasury Note and Bond Auctions, 1970-75

[...]This article examines the introduction of regular auctionofferings of Treasury notes and bonds in the early 1970s. We donot take issue with the conventional wisdom that auctions aremore efficient and less costly than fixed-price offerings. Rather,we seek to identify why the Treasury twice tried and failed toadopt the more efficient method but succeeded on its thirdattempt. We suggest that the success of the effort rested on three pillars. First, the Treasury closely imitated its successfuland well-known bill auction process. This strategy gave dealersa familiar starting point for developing the risk managementand sales programs needed to support auction bidding forcoupon-bearing securities. Second, the Treasury announcedauctions for securities of gradually increasing maturity, ratherthan jumping immediately to auctioning long-term bonds,as it did in 1935 and 1963. This action allowed dealers anopportunity to build up their risk management and salesprograms in an orderly fashion. Third, the Treasurydemonstrated a willingness to alter the auction process whenshortcomings appeared—rather than simply jettisoning theentire effort, as it did in 1935 and 1963. By combiningfamiliarity, gradualism, and a willingness to improvise, theTreasury successfully moved the primary market for couponbearingsecurities to a more efficient configuration.[...]