Auctioning Corporate Bonds: A Uniform-Price under Investment Mandates

Abstract

There has been a rapid growth in the use of investment mandates for the management of fixed-income assets. In this paper, we examine how the limits set in investment mandates can affect the bidding strategy during the issuance of a corporate bond. We apply the uniform-price auction and prove the existence of symmetric Bayesian Nash equilibrium. Under the presence of an exogenous secondary market, an expectation for higher yields on resale increases the demand for the bond. Moreover, the number of participating investors and the oligopolistic market power of each investment manager always affect the bidding strategy inversely.