How does a public debt auction work?

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In the current economic situation, the financial situation of Spanish families is becoming more precarious.

To help mitigate this situation, there are a number of mechanisms to partially reduce the effect of the tax increases that we are facing in recent times. One of them is to invest the savings that we have in public debt, if yesterday we were talking about what public debt is and how it works today, we are going to delve into the auction system through which we can acquire State Letters, Bonds or Obligations.

With the general decline in interest rates on basic financial savings products, that is, time deposits and savings accounts, the interest rates currently paid by the State are quite attractive.

We will start by commenting briefly on what types of public debt issues exist and then explain how you can buy.

 

Types of public debt issues

Types of public debt issues

The government can make various types of emissions. The differences between them lie mainly in the term and the way of paying interest.

The types of emissions are:

Treasury bills: It is the shortest term public fixed income financial instrument, generally months. They are issued using the discount mode. That is, buyers pay a lower price than they receive at maturity.

For example, they pay 990 dollars and receive 1,000 dollars at maturity.

State bonds: It is a financial instrument for the medium or long term. Its duration is longer than Treasury Bills, between 3 and 5 years. Its nominal value is 1,000 dollars and they pay the indicated interest each year.

Obligations of the state: It is a financial instrument indicated for the very long term. Much like state bonds, their duration ranges from 5 years to 30 years. They also pay the interest annually and their nominal value is 1,000 dollars.

 

How is the public debt auction

How is the public debt auction

Having briefly explained the types of issues, we will explain how the public debt auction works.

When an auction is held, the entities that attend it can submit two types of requests:

Non-competitive: In these types of requests no specific purchase price is indicated. They accept the weighted average price that results in the auction of competitive requests.

Competitive: In this type of requests it is specifically indicated what amount of money you want to invest and therefore what amount of letters, bonds or obligations you want to acquire.

When this information is collected the auction begins?

When this information is collected the auction begins?

The amounts corresponding to the non-competitive auctions are awarded first and finally they are distributed to the competitive requests.

At the time of deciding the amounts of debt among the competitive requests, these requests are ordered from highest to lowest indicated price and the debt is gradually awarded.

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