Common value auction theory explains that underpricing in Treasury bond auctions exists because participants submit bids that are lower than their expected offer price, in order to maximize profits (bid shading). According to Goldreich (2007), offer price expectation is affected by available public information, such as liquidity (Amihud and Mendelson, 1986) and the volatility level of the treasury bonds to be auctioned (Nyborg et al, 2005), whereas the magnitude of bid shading is affected by private information, including the level of competition and differing views among participants. This research is aimed to examine the existence of such underpricing in Indonesia and study the factors that might explain its persistence.In the Indonesian Treasury bond market, the author discovered an average of 57 bps underpricing during the issuance auction of Fixed Rate series (FR) from 2005 to 2009. Unlike previous research, this study found that underpricing had not been affected by competition and volatility levels. Instead, underpricing was most affected by the markets liquidity between the announcement of the auction plan and the auction date and the degree to which market participants views differed. These results indicate that participants had a trading bias, basing their bidding behavior largely on liquidity and spread out their bids in order to both maximize profits and to avoid the winner’s curse.The author also discovered the impact of a number of new factors affecting under pricing that had never been studied before. Such factors consist of the total volume won by foreign investors through stealth trading strategy in the auction, changes in the total volume of foreign investors’ ownership in treasury bonds in secondary market through positive feedback trading, changes in global market risk that reflect investors risk appetite, changes in credit risk, and changes in BI rate that validate the expectations hypothesis theory.