Reverse Auction for Government Securities: Background Information and Application Form

Reverse Auction for Government Securities: Background Information on Series D Buyback

What is a reverse auction?

A reverse auction is an auction in which the Government of Barbados seeks to buy, rather than sell securities.

Why is the Government of Barbados seeking to buy Series D?

As announced by the Minister of Finance in the Budgetary Proposals and Financial Statement delivered in March 2023 the Government is embarking on a series of measures intended to help stimulate the secondary market and activity in Government securities. For bondholders, the buyback is intended to provide a market for those who may wish to sell their securities to increase liquidity or to invest in alternative assets. For the Government, the buyback will aid with the reduction of debt, the creation of a yield curve for new medium-to-long term securities, and support the gradual extension of maturities under the Government’s debt management programme.

What format will be used for the buyback? Is this the same as Treasury Bill auctions?

The auction will be very similar to that used for Treasury Bills; the primary difference is that bondholders will specify the price at which they are willing to sell rather than purchase securities. As in the latest Treasury Bill auction, a non-competitive option will exist for individual bondholders who wish to sell at the price determined in the competitive auction rather than submitting a bid price that may or may not be successful.

Bids received under the competitive option will be ranked from the lowest price to the highest price. Once the volume of bids reaches the target amount of the buyback, the auction will be stopped, and all successful bidders (including those individuals who bid under the non-competitive option) will be awarded the highest accepted bid price. The use of the highest accepted bid price supports a market for the future buying and selling of securities and a distinct yield curve; this represents the second key difference from Treasury Bill auctions, which award successful bidders securities at the individual prices at which they bid.

 What price range is likely to be successful in bidding?

As in Treasury Bill auctions, the successful bidding range will depend on how many holders submit bids and their level of interest in receiving cash at price that is likely to be below the face value of the security.

Given that there is relatively little trading in the security and no prior buybacks, it is difficult to predict how bondholders are likely to bid. However, the lower the price, the more likely a bid will be successful.

 Is the Government required to accept bids? What amount will be repurchased?

The Government retains the right to reject any or all bids similar to best international practice in security repurchases. The total securities repurchased will be depend on the amount and the price range of the bids received.

 Is there a time schedule for future buybacks?

No. The Government will evaluate when and how often to open future auctions in the coming months.