Auctioning Corporate Bonds: A Uniform-Price under Investment Mandates

This paper examines how risk and budget limits on investment mandates affect the bidding strategy in a uniform-price auction for issuing corporate bonds. I prove the existence of symmetric Bayesian Nash equilibrium and explore how the risk limits imposed on the mandate may mitigate severe underpricing, as the symmetric equilibrium's yield positively relates to the risk limit. Investment mandates with low-risk acceptance inversely affect the equilibrium bid. The equilibrium bid provides insights into the optimal mechanism for pricing corporate bonds conveying information about the bond's valuation, market power, and the number of bidders. These findings contribute to auction theory and have implications for empirical research in the corporate bond market.