Sovereign Debt Auctions in Turbulent Times

We use a model of multiunit discriminatory auctions with asymmetrically informed risk-averse bidders to analyze Mexican sovereign bond auctions during periods of macroeconomic stress. We argue that the discriminatory protocol provides insurance benefits to the government in bad times because it allows for uninformed bids above the marginal price to be executed at the bid price. Uninformed investors are willing to make such bids if the inframarginal risk premium is large enough to offset the winner's curse. In crisis periods, we infer 1 p.p. lower borrowing costs in the worst states of the world, but 2.2 p.p. higher average costs.