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During a new bond issue how do the bankers/advisors determine an initial price for the bond? I know that during an IPO the investment bankers will guage demand for the issue, and price the issue according to the demand. Is this the same process that is applied for a new bond issue, or is there another way that the initial price is determined using the present value formula and overall market conditions? Thanks!

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Is this the same process that is applied for a new bond issue, or is there another way that the initial price is determined using the present value formula and overall market conditions?

It is similar and not same. Generally in IPO there is a price band recommended and the book building results in the actual price.

On Treasury bonds, the Govt / Central Bank will price these similar to the yields currently available for older bonds. If they offer more yield, it will get over subscribed and Govt/Central Bank has to pay back more interest. If the yield is low; it will not get subscribed.

On Corporate Bonds, depending on the company ratings as well as company brand, a specific company may choose to offer lesser yield or more yield.

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    Actually [at least US] treasuries go through a reverse Dutch auction process at issuance to determine the price. Although the price is likely to be inline with current market prices (ceteris paribus) there is no guarantee until the whole issue is taken up. – MD-Tech Oct 12 '18 at 12:45

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