CFA Level I · CFA Level I Exam · Fixed-Income Markets for Government Issuers
In a government bond auction, the single-price format, in which all successful bidders pay the same price, is most likely to:
A single-price auction most likely reduces the winner's curse and encourages aggressive bidding, because every successful bidder pays the same market-clearing price. Paying your own bid describes a multiple-price auction, and no format guarantees the issuer the lowest yield.
- Areduce the winner's curse and encourage aggressive biddingCorrect
- Bforce each bidder to pay exactly the price it bid
- Cguarantee the lowest possible yield for the issuer
Explanation
In a single-price auction all winners pay the market-clearing price, so bidders worry less about overpaying and bid more aggressively. Paying one's own bid describes the multiple-price auction. No auction format guarantees the lowest yield.
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