What is the 'Bid-to-Cover Ratio'

The bid-to-cover ratio is the dollar amount of bids received in a Treasury security auction versus the amount sold. The bid-to-cover ratio is an indicator of the demand for Treasury securities. A high ratio is an indication of a strong demand.

BREAKING DOWN 'Bid-to-Cover Ratio'

For example, if a Treasury auction offers $20 billion in seven-year bonds, and bids amounting to $40 billion are received, then the bid-to-cover ratio is 2.0. A successful auction is one in which the bid-to-cover ratio substantially exceeds the average of the previous 12 auctions for that security type. On the other hand, a low ratio is an indication of a disappointing auction. Bid-to-cover ratios typically exceed 2.0, especially for shorter-term securities.

Generally, Treasury auctions occur more frequently for short-term issues, typically weekly for bills, monthly for notes and quarterly for bonds. Typical buyers include primary dealers, investment funds, pension funds, foreign parties and individual investors. Bids are submitted via the Treasury Automated Auction System (TAAPS) or through TreasuryDirect. Of these, the largest purchasers are primary dealers, which often sell them later on the secondary market. To ensure that the secondary market remains competitive, bidders are allowed to purchase no more than 35% of any offering.

Once the auction is complete, competitive bidders will receive the amount they bid at the yield offered, beginning with the lowest yield. The system then moves to the next-lowest bid yield, and so on until the entire offering is complete.

RELATED TERMS
  1. Dutch Auction

    A Dutch auction is a public offering auction structure in which ...
  2. Bill Auction

    Bill auction is a public auction for Treasury bills that is held ...
  3. Auction Rate

    Auction rate is the interest rate that will be paid on a specific ...
  4. Auction

    An auction is a process where potential buyers place competitive ...
  5. Bill Announcement

    Bill announcement is a notice informing investors about the next ...
  6. Reverse Auction

    A reverse auction is a type of auction in which sellers bid for ...
Related Articles
  1. Investing

    Should you buy a house at auction?

    The traditional real estate market isn't the only place to conduct your home search. Auctions also bring many buying opportunities.
  2. Investing

    Introduction to Treasury Securities

    Purchasing Treasury securities backed by the U.S. government and knowing their characteristics can provide a steady guaranteed income and peace of mind.
  3. Managing Wealth

    Top Ways To Profit From Storage Auctions

    Here are some extremely valuable tips to help you become an expert at finding deals at storage auctions.
  4. Tech

    E&Y Auctioning Last of Seized Bitcoin from Silk Road

    Auditing firm Ernst & Young will be auctioning off the last of the pirate booty seized from the black market site once known as Silk Road.
  5. Investing

    How To Read A T-Bill Quote

    Treasury bills, or "T-bills," are debt obligations issued by the U.S. government. Learning how to read the quotes is the first step to start trading.
  6. Investing

    Banks Take Extra $3.5 Billion Cash Ahead of Brexit

    As liquidity concerns grow for European banks heading into next week's Brexit vote, the Bank of England is holding additional Repo auctions to ensure banks have enough liquidity heading into ...
  7. Managing Wealth

    How To Master Online Auctions For Fast Cash

    Online selling is just as easy as in-person selling and can yield five to 10 times the profit.
  8. Investing

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks, bonds and other securities are traded.
  9. Investing

    The Basics Of The T-Bill

    The U.S. government has two primary methods of raising capital. One is by taxing individuals, businesses, trusts and estates; and the other is by issuing fixed-income securities that are backed ...
RELATED FAQS
  1. What does it mean when my broker says that shares are for auction?

    An auction market is one in which stock buyers enter competitive bids and stock sellers enter competitive offers at the same ... Read Answer >>
  2. Treasury Bond vs Treasury Note vs Treasury Bill

    Understand the types of securities the government issues. Learn the difference between Treasury notes (T-notes), Treasury ... Read Answer >>
  3. How can a company quickly increase its liquidity ratio?

    Discover what high and low values in the liquidity ratio mean and what steps companies can take to improve liquidity ratios ... Read Answer >>
  4. What Is Treasury Stock?

    Find out about shares called treasury stocks that were once part of shares outstanding for a company, but have since been ... Read Answer >>
Trading Center