Published Online:April 2026
Product Name:The IUP Journal of Applied Finance
Product Type:Article
Product Code:IJAF040426
DOI:10.71329/IUPJAF/2026.32.2.76-104
Author Name:Shiv Shankar
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:76-104
The prevailing bond market volatility and the auction methodologies employed may influence borrowing costs, thereby affecting fiscal arithmetic. Furthermore, the spillover induced of external volatility also contribute to the hardening of domestic yields. In this context, the study, utilizing the Blinder-Oaxaca decomposition, reveals that different bond auction methods yield distinct cost outcomes. Specifically, discriminatory auctions tend to result in lower yields compared to uniform-price auctions, although this differential is largely attributable to the intrinsic characteristics of the securities and the market environment. Nevertheless, given that the bidding process entails inequitable cost implications for the sovereign across auction methodologies, mitigating bond market volatility and harmonizing bond issuance frameworks between the central and state governments would serve to optimize sovereign borrowing costs raised through the domestic market.
The Government Security (G-Sec) market in India prior to 1991 was characterized by administered interest rates and a captive investor base, which implicitly supported sovereign borrowing costs. Reforms initiated during the 1990s significantly improved market liquidity; consequently, from the post-2000 period onward, debt instruments—Bonds and Treasury bills (T-bills)—with defined coupon, payment schedules, tenors, and associated prudential norms, have predominantly been issued at market-determined price.