Question

Assuming the government is selling a government bond to fight COVID-19, and at the same time, ASHANTI Goldfields Company is selling a corporate bond to increase its production. Under what conditions will the production-linked corporate bond be oversubscribed at the expense of the government bond. Explore all possible scenarios.

Answer 1

Production linked corporate bonds will be oversubscribed at the expense of government bonds due to following reasons:

• There is an increased demand of corporate bonds as people find it more secured to invest in corporate bonds than equity securities due to market fluctuations during covid19.
• Goldfield Corporate bonds yield high return than government bonds as corporate bonds are riskier. Due to this reason there can be oversubscription.
• The other scenario can be of preannouncement of issuance of corporate bonds which leads to oversubscription of it rather than of government bonds.