Packet - Economics - Johns Hopkins University

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NON-ACADEMIC EXPERIENCE Michele G. Mazzoleni UBS Investment Bank, Intern at Foreign Exchange Division, Switzerland, January - August 2007 CONFERENCE PRESENTATIONS Southern Economic Association, Annual Meeting in New Orleans, November 2012, (Paper: “Treasury Yields and Auction Cycle Management”) EconCon Conference, Princeton, August 2012, (Paper: “Treasury Yields and Auction Cycle Management”) DISTINCTIONS SKILLS Fellowship, Department of Economics, Johns Hopkins University, Fall 2008-present BSI Pietro Balestra Award, University of Lugano, Summer 2006, (Best student in the courses of statistics, econometrics, and mathematics) Computer: MATLAB, Stata, L ATEX, Bloomberg Languages: English (fluent), Italian (native), French (good), German (intermediate) REFERENCES Professor Jonathan H. Wright Johns Hopkins University, Department of Economics E-mail: wrightj@jhu.edu, Phone: +1 (410) 516-5728 Professor Gregory R. Duffee Johns Hopkins University, Department of Economics E-mail: duffee@jhu.edu, Phone: +1 (410) 516-8828 Professor Olivier Jeanne Johns Hopkins University, Department of Economics E-mail: ojeanne@jhu.edu, Phone: +1 (410) 516-7604 Updated: November 12, 2012
Essays on the U.S. Treasury Market and its Frictions Michele G. Mazzoleni A growing literature argues that Treasury market frictions may have significant effects on the yield curve. My dissertation studies their effects on yields following Treasury auctions and explores the implications for debt management policies and theories of limited arbitrage. Chapter 1: Treasury Yields and Auction Cycle Management (Job Market Paper) I show that the U.S. Treasury influences the yield curve by managing the auction cycles of its securities. First, I develop a simple theoretical model in which the Treasury selects the size and the frequency of auctions. I show that the Treasury may increase its revenues by choosing to issue small amounts frequently or larger amounts less frequently, and the relative profitability of each policy depends on its financing needs. Second, I estimate an empirical model of Treasury yields. I find that auction size and frequency affect new and old note yields as predicted by my model; in addition, their influence persists for several weeks after the initial issuance. Third, I evaluate the Treasury’s decisions to shift the frequency of auctions between monthly and quarterly. Given the evolution of borrowing needs, I find that these policies saved U.S. taxpayers a considerable amount of money. Chapter 2: Do Investor Classes affect Treasury Yields? Evidence from Buyers in the Primary Market (in progress) Recent empirical evidence shows that Treasury auctions exercise temporary pressure on bond prices because of the imperfect liquidity of the market. In this paper, I study how the magnitude of this price pressure is related to the composition of buyers at auction. I distinguish between three main categories of investors: broker-dealers, investment funds, and foreign investors. I find that prices at auction are positively related to the share purchased by investment funds and negatively related to the share purchased by broker-dealers. Instead, foreign investors appear to have only marginal influence. Further, these shares predict subsequent excess returns. These findings are consistent with the view that broker-dealers are the “liquidity providers” of the Treasury market. Chapter 3: Market Segmentation and Bond Risk Premia (in progress) Newly issued Treasury securities (“on-the-runs”) regularly trade at a premium over similar but older securities (“off-the-runs”). This spread is usually attributed to the different liquidity of the assets. I argue that movements in this premium also reflect arbitrageurs’ risk-bearing capacity. Consistent with my hypothesis, I find that the five- and the ten-year on-the-run premia are related to the off-the-run yield curve. For instance, a 0.1% increase of the tenyear on-the-run premium is associated with a 0.5% steepening of the off-the-run yield curve. Further, the five- and ten-year on-the-run premia forecast off-the-run excess returns even after controlling for the level, the slope, and the curvature of the yield curve. Finally, I document that these premia are positively related to primary dealers’ Treasury positions. This evidence indicates that on-the-run premia may be a useful indicator of investors’ risk exposure.
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