How does a bond auction actually work?

[Kermit power]

We all know bond auctions and more particularly the resulting yields are getting more than their usual media coverage at the moment, but what are the actual mechanics of a bond auction?

When a government wants to sell €5bn, say, do all the bonds go at the same yield, or do people put bids in at various yields and then the figure we see on the news is the average?

If it is an average, what would be a typical spread either side of the published figure?

Any other interesting nuggets welcome.

[Fittster]

Which country are you interested in?

[Sebo]

Away from desk right now but the MTS website may have some info for you.

[Ayahuasca]

The govt sets the bonds coupon (fixed rate of payment that it will pay on £100, lets say 3% so £3 a year) and term.

An investment bank will contract to sell the bonds in the market.

If a buyer thinks that the bonds are crap he might offfer say £80 for the £100 bond, and thus receive a 'yield' of 3.75%.

Another buyer might offer a bit less or more so their yield will be different again.

[Kermit power]

So are the bids submitted as blind bids?

Do bonds get allocated starting with the highest bids and then dropping down until there are either no bonds or no bids left?