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.

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.