Misplaced Pages

This article relies largely or entirely on a single source. Relevant discussion may be found on the talk page. Please help improve this article by introducing citations to additional sources. Find sources: "Bid-to-cover ratio" – news · newspapers · books · scholar · JSTOR (February 2021)

Part of a series on
Auctions
Types
All-pay Chinese Bidding fee Dollar Amsterdam Anglo-Dutch Barter double Best/not best Brazilian Calcutta Candle Click-box bidding Combinatorial Common value Deferred-acceptance Discriminatory price Double Dutch English Forward French Generalized first-price Generalized second-price Japanese Knapsack Multi-attribute Multiunit No-reserve Rank Reverse Scottish Sealed first-price Simultaneous ascending Single-price Traffic light Uniform price Unique bid Value of revenues Vickrey Vickrey–Clarke–Groves Walrasian Yankee
Bidding
Shading Calor licitantis Cancellation hunt Jump Rigging Sniping Suicide Tacit collusion
Contexts
Algorithms Autos Art Charity Children Players Domain names Flowers Loans Scam Slaves Spectrum Stamps Virginity Wine Wives
Theory
Digital goods Price of anarchy Revenue equivalence Winner's curse
Online
Ebidding Private electronic market Software
v t e

Bid-To-Cover Ratio is a ratio used to measure the demand for a particular security during offerings and auctions. In general, it is used for shares, bonds, and other securities. It may be computed in two ways: either the number of bids received divided by the number of bids accepted, or the value of bids received divided by the value of bids accepted.

The higher the ratio, the higher the demand. A ratio above 2.0 indicates a successful auction with aggressive bids. A lower reading indicates weak demand and is said to have a long tail (a wide spread between the average and the high yield).

Example

For example, suppose debt managers are seeking to raise $10 billion in ten-year notes with a 5.130% coupon, and, in aggregate, they have received seven bids from lenders as follows:

• Bid 1 for $1.00 billion at 5.115%
• Bid 2 for $2.50 billion at 5.120%
• Bid 3 for $3.50 billion at 5.125%
• Bid 4 for $4.50 billion at 5.130%
• Bid 5 for $3.75 billion at 5.135%
• Bid 6 for $2.75 billion at 5.140%
• Bid 7 for $1.50 billion at 5.145%

The total of all bids received is $19.5 billion, and the number of bids accepted would be $10 billion, therefore leading to a bid-to-cover ratio of 1.95 (calculated by the value method). Since the managers are interested in raising the cheapest debt possible, bids 1, 2, 3 will be covered in full ($7 billion). Bid 4 will be partially covered ($3 billion out of $4.5 billion). Bids 5, 6, 7 will be rejected. The final coupon will be fixed at 5.130% (the rate of the last bid accepted) for all the bids covered.

See also

• Dutch auction
• Overallotment option

References

1. bid-to-cover ratio
2. "Bid-to-cover ratio". nasdaq.com. Retrieved 10 September 2024.
3. Bid-to-Cover Ratio
4. "Bid-to-cover ratio definition". capital.com. capital.com. Retrieved 10 September 2024.

External links

• How do treasury auctions work?

• Auction theory
• Financial ratios