Bond Issuance

Issuance of sovereign debt usually takes the form of a public auction using standard procedures led by the national treasury or finance ministry.

The issuer announces the terms of the issue and interested parties submit (competitive or non-competitive) bids for it. Auctions often yield the most money for the issue. They allow the issuer to sell directly to the public, eliminating the underwriting fee. In major developed bond markets, newly-issued sovereign bonds are most often sold to the public via auction.

Sovereign governments usually designate a group of financial intermediaries as primary dealers that are required to participate in all auctions with competitive prices.

A competitive bid process can be a single- or multiple-price auction.

Corporate debt are managed by investment bank underwriters on behalf of issuers. The function of buying the bonds from the issuer is called the underwriting. An investment bank (called the underwriter) takes the risk of buying the whole issue as firm commitment underwriting. It makes a profit by selling the bonds for more than what it paid for them.

There are six phases: the determination of the funding needs, the selection of the underwriter, the structuring and announcement of the bond offering, pricing, issuance, and closing.

Secondary Market

Once issued, sovereign debt is usually traded in a manner similar to private sector debt securities, primarily in OTC markets through financial intermediary broker/dealers.