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CFA Level I · CFA Level I Exam · Fixed-Income Markets for Government Issuers

A government auctions USD 1,000 million of 5-year notes. Competitive bids at or below the stop-out yield total USD 1,400 million, and noncompetitive bids of USD 100 million are accepted first. Assuming the government awards the issue to the lowest-yield competitive bids, the amount of competitive bids that is accepted is closest to:

Competitive bids accepted equal about USD 900 million. Noncompetitive bids of USD 100 million are filled first, leaving 1,000 minus 100 for competitive bidders. Accepting more would exceed the USD 1,000 million offering, and the larger bid total simply means the auction is oversubscribed.

  1. AUSD 900 millionCorrect
  2. BUSD 1,000 million
  3. CUSD 1,300 million

Explanation

Noncompetitive bids are filled first at the auction price: USD 100 million. Remaining amount for competitive bidders = 1,000 - 100 = USD 900 million. Accepting USD 1,000 million of competitive bids would ignore the noncompetitive allocation, and the issue size caps the total.

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