How to Sell Public Debt in Uncertain Times

How should governments structure primary sovereign bond markets when investors face asymmetric uncertainty about default risk and total demand? Standard protocols either use uniform prices for all investors, or price discriminate based on bid prices (“pay as bid”). Uniform pricing encourages more bidding by uninformed investors but price discrimination captures inframarginal surplus. Based on this tradeoff, we analyze a potential protocol that features price discrimination on inframarginal bids and uniform pricing on marginal bids, thereby reducing the mean and variance of public borrowing costs. We also offer new evidence on the information content of primary bond markets which supports our framework.