Bond auction
When governments want to raise money, they do so by issuing bills (typically short-term) and bonds (longer term – maturities can reach 30 years or more).
When governments want to raise money, they do so by issuing bills (typically short-term) and bonds (longer term maturities can reach 30 years or more). The method is usually an auction. Remember that the issuer wants to raise capital as cheaply as possible and that means at the lowest possible yield (the yield is the annual return divided by price as a percentage. So the more a bidder bids, the lower the yield will be).
A competitive auction is where institutional and individual investors fight to get the bonds. It should ensure the issuing government raises the money it needs at the lowest cost.
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