Bidding Behavior in Italian Treasury Auctions: The Role of Top-ups

In response to rising global government debt, sovereign debt management offices (DMOs) are increasingly refining their issuance methods to optimize investor engagement and minimize borrowing costs. This paper evaluates the effectiveness of a two-stage Treasury auction design that incorporates a supplementary non-competitive 'top-up' component, assessing its potential to enhance bidder performance. Utilizing detailed microdata from Italian Treasury bill auctions and employing a Difference-in-Differences analytical framework, the paper investigates how these supplementary top-up auctions influence bidder behavior in terms of requested quantities and offered prices during the main competitive auction. The analysis demonstrates that the introduction of top-ups promotes more aggressive bidding, especially among marginal bids, leading to higher cumulative bid values in the primary competitive phase. These findings suggest that top-up auctions can effectively boost auction coverage and may contribute to lower government borrowing costs by strategically shaping bidder incentives and behaviors.