Government Securities: What You Need to Know About Reverse Auctions

Government securities are financial instruments issued by governments to raise funds from institutional and individual investors for financing purposes. 

These securities allow Government to borrow money for infrastructural projects, social programmes, and other expenses.

In return, investors benefit from rates of returns that are typically above those offered by a regular savings account.

Government securities include short term securities such as Treasury Bills and medium- and long-term securities such as Treasury Notes and Debentures. 

In this article, we discuss reverse auctions.

What is A Reverse Auction in the Context of Government Securities?

A reverse auction is an auction in which the Government of Barbados seeks to buy outstanding securities. This is the opposite of a typical auction where the government sells new securities to raise funds. 

How Does a Reverse Auction Work?

Government will specify which outstanding securities it wants to buy back. Individual bondholders who want to sell can choose between competitive and non-competitive options.

Under the competitive option, investors submit offers and these are ranked from the lowest price to the highest price. The non-competitive option is for individual bondholders who want to sell at the price determined in the competitive auction instead of submitting an offer price that may or may not have been successful.

The auction is successful when the value of accepted offers reaches the targeted amount. All successful bondholders, including those who offered under the non-competitive option will receive the accepted offer price.

How Does a Reverse Auction Differ From a Treasury Bill Auction?

A reverse auction differs from a Treasury Bill auction. In a reverse auction, the individuals specify the price at which they will offer their securities for sale while for Treasury bills the investor indicates the price at which they are willing to purchase.  In addition, while all successful bondholders in a reverse auction receive the accepted offer price, in the auction of Treasury Bills successful bidders receive securities at the individual prices at which they bid.

Who Should Take Advantage of Reverse Auctions?

Reverse auctions can be helpful for investors who want to sell their securities to increase liquidity or to get cash to invest in alternative assets. 

How Can I Sell My Securities in a Reverse Auction?

Government evaluates when and how often to open future auctions. We will publish the details on our website when Government is seeking to buy back securities.

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