Maturity Composition and the Demand for Government Debt

Last updated: July 2022

The main objectives of debt management are to raise stable and low-cost funding to meet the government’s financial needs and to maintain a well-functioning market for government securities. A challenge is determining how to sell government debt: the sale format, the choice of securities to offer and the allocation across different maturities. 

This paper focuses on the allocation of debt across maturities. We propose a method for identifying dependencies in the demand for securities of different maturities. We show that the demand elasticities, together with the auction format, determine how to allocate debt across securities. In a discriminatory price auction, the government should issue more of the price-sensitive security and less of the price-insensitive one. The opposite is true in a uniform price auction.