CFA Practice Problems Reading 64 - Fixed Income Page 339 Question 3 a: What is the difference between a single-price auction and a multiple-price auction? CFA answer: In a single-price auction, all winning bidders are awarded securities at the highest yield bid. In a multiple-price auction, all winning bidders are awarded securities at the yield they bid. Why the heck would the central government award the securities at the highest yield bid? Wouldn’t you want issue at the highest price bid (lowest yield)? This certainly does not make sense to me.
This is a bit more complicated. You have broadly two groups of bidders. One who bid by specifying the yield they expect. And another that wants to buy a certain amt. (competitive vs non-competitive). The 'non-competitive' bidders will be able to get the bills/notes etc. at the price decided (best yield) from among the competitive bidders. There are restrictions as to how much you can buy as a non-competitive bidders, since they will always be a "winner" in the auction (like 5Million). Keep in mind, this is not how normal auctions work.
Nodoubt, can you explain that in a different way or something please?I had the same question as Aliman… " Why the heck would the central government award the securities at the highest yield bid? Wouldn’t you want issue at the highest price bid (lowest yield)?"