Discriminatory Versus Uniform Auction: Evidence From JGB Market

Abstract

In 2007, the Japanese government changed the format of auctions for 30-year Japanese government bonds (JGB) from uniform to discriminatory. We examine data before and after this change to assess whether this has lowered the borrowing costs of the Japanese government, in the largest government bond market in the world. As Ausubel et al. (2014) described, the general revenue ranking of uniform and discriminatory auctions is an empirical question. Our empirical result shows that this policy change lowered borrowing costs. We also show that a discriminatory auction lowers the borrowing costs when the value of the bidders to JGB tends to be symmetric, which is consistent with the prediction of Ausubel et al. (2014).

Keywords: Discriminatory Auction; Uniform Auction; Markup; When-Issued Markets; Japanese Government Bond

JEL Classification: C57; D82; G18; G28