The bid-to-cover ratio measures the strength of demand at auctions of government securities, such as U.S. Treasury bills or U.K. "gilts." So today, we will talk about Bid-to-cover ratio. Let’s find out by reading the article below.
What is bid-to-cover ratio?
The bid multiple is the ratio of the bid amount received to the amount sold in a Treasury auction. The bid-to-cover ratio is a measure of demand for Treasuries. A high ratio indicates strong demand. A ratio of 2 or higher indicates strong demand for the security as twice as many bids have been received as accepted. If the ratio falls to 1 or below, the auction is clearly in trouble. Authorities keep a close eye on bid multiples, given the strength of demand for government securities determines the interest rates countries must pay for their borrowings.
How is bid to cover ratio calculated?
The calculation of bid coverage is fairly straightforward and is based on bid volume or bid value. One way to do this is to consider the number of bids received divided by the number of bids accepted. Another way to calculate this ratio is to consider the relationship between the bids received and the bids accepted in the auction, so:
Bid-to-cover ratio = value of bids received/value of bids accepted
I hope this article will help you to learn what is bid-to-cover ratio & how is bid to cover ratio calculated. The bid-to-cover ratio is an indicator of demand for Treasuries; a high ratio indicates strong demand.
