BOND AUCTION Meaning and
Definition
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A bond auction is a financial process in which new bonds issued by the government or corporations are sold to investors in the primary market. It is a well-organized event where securities, in the form of bonds, are put up for sale to interested parties, such as individuals, institutions, or other governments.
During a bond auction, the issuer sets various parameters including the type of bond, maturity date, interest rate, and total amount being sold. These details are disclosed to potential bidders before the auction. Investors then submit their bids indicating the quantity of bonds they are willing to purchase and the price they are willing to pay.
There are different types of bond auctions, such as competitive and non-competitive. In a competitive auction, participants bid against each other, trying to outbid their competitors to obtain the desired amount of bonds. The highest bidder secures the bonds, and all participants pay the price they bid. On the other hand, non-competitive auctions allow investors to purchase bonds at the average price of all successful competitive bids.
Bond auctions play a crucial role in determining the price and interest rate of bonds, as well as the government borrowing costs. They provide an opportunity for governments and corporations to raise funds by attracting investors who are interested in fixed-income securities. Additionally, bond auctions facilitate price discovery, as the highest bid sets the market price for the bonds being sold.
Common Misspellings for BOND AUCTION
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Etymology of BOND AUCTION
The word "bond auction" is a combination of two words: "bond" and "auction".
1. "Bond" comes from the Middle English word "bonde", which originally meant a binding or tying together. It evolved from the Old English word "bænd" meaning fetter or chain. Over time, it came to refer to a written or contractual obligation or agreement. In the context of finance, a bond refers to a debt security issued by a government or corporation to raise capital, with a promise to repay the borrowed amount at a specified future date along with periodic interest payments.
2. "Auction" comes from the Latin word "auctio", which means an increase or growth. It originally referred to the process of increasing bids or offers until there is a winning price. In an auction, goods or services are sold to the highest bidder.
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