WASHINGTON - The Treasury Department is expected to announce details today of plans to test a single-price auction method for government securities.
Treasury Undersecretary for Finance Jerome Powell has scheduled a press conference for 10 a.m., and industry sources said he will explain the test.
Treasury officials have suggested that a single-price auction may help the government get better prices for its securities. In theory, dealers will bid more aggressively because they will not have to fear the "winner's curse" of getting stuck with overpriced securities that they do not want.
Critics say if bidders do not change their behavior, the Treasury will end up leaving money on the table and selling debt at a higher price than it would otherwise.
Under the current multiple-price system, bidders are allotted shares of each Treasury offering based on how they how much they offer to pay. A typical offering results in securities sold at several different yields and prices.
It was not known yesterday exactly how the Treasury will conduct the experiment for a single-price auction. However, the department has shelved for some time the idea of having an open bidding system in which dealers would see an auction unfold in several rounds on their computer screens.
That means any experiment would continue to involve closed bidding with dealers submitting sealed offers.
The Treasury experimented briefly with a single-price auction method in the 1970s but gave up on the idea before reaching any conclusions.
The Treasury borrowing advisory committee of the Public Securities Association recently urged a six-month to one-year testing of a single-price auction as soon as possible. The panel also recommended that the experiment be limited to two-year and five-year note auctions.
A minority of panel members preferred experimenting only with five-year notes.