What is the bid-to-cover ratio?
The bid-to-cover ratio measures the strength of demand in an auction for government securities, such as US Treasury bills or UK 'gilts'. A high ratio indicates a healthy level of demand for the securities in question, a low ratio suggests the opposite.
Where have you heard about the bid-to-cover ratio?
As an investor, you may have heard of the bid-to-cover ratio, especially if you are invested in government securities. Financial media may refer to the bit-to-cover ratio from time to time, as may your financial adviser.
What you need to know about the bid-to-cover ratio.
The bid-to-cover ratio is quite straightforward. It measures the total number of bids in an auction for government securities against the number of successful bids. A ratio of 2 or higher suggest strong demand for the securities, given that twice as many bids have been received as have been accepted. Should the ratio fall to 1 or below, the auction is clearly in trouble. Given that the strength of demand for government securities dictates the rate of interest that the state in question has to pay on its borrowings, the bid-to-cover ratio is closely watched by the authorities.
Find out more about the bid-to-cover ratio.
The bid-to-cover ratio measures demand for government bonds. Learn more about government bonds here.