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How to Sell Public Debt in Uncertain Times

Author

Listed:
  • Harold L. Cole
  • Daniel Neuhann
  • Guillermo Ordoñez

Abstract

How should governments structure primary sovereign bond markets when investors face asymmetric uncertainty about default risk and total demand? Standard protocols either use uniform prices for all investors, or price discriminate based on bid prices (“pay as bid”). Uniform pricing encourages more bidding by uninformed investors but price discrimination captures inframarginal surplus. Based on this tradeoff, we analyze a potential protocol that features price discrimination on inframarginal bids and uniform pricing on marginal bids, thereby reducing the mean and variance of public borrowing costs. We also offer new evidence on the information content of primary bond markets which supports our framework.

Suggested Citation

  • Harold L. Cole & Daniel Neuhann & Guillermo Ordoñez, 2025. "How to Sell Public Debt in Uncertain Times," NBER Working Papers 33616, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33616
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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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