Bid-To-Cover Ratio is a ratio used to express the demand for a particular security during offerings and auctions. In general, it is used for shares, bonds, and other securities. It is computed in two ways: the number of bids received divided by the number of bids accepted, or the total amount of the bids is used instead.
The higher the ratio, the higher the demand. A ratio above 2.0 indicates a successful auction comprised of aggressive bids. A low ratio is an indication of a disappointing auction, marked by a wide bid-ask spread.
For example, suppose debt managers are seeking to raise $10 billion in ten-year notes with a 5.125% coupon, and in aggregate the bids are as follows:
- $1.00 billion at 5.115%
- $2.50 billion at 5.120%
- $3.50 billion at 5.125%
- $4.50 billion at 5.130%
- $3.75 billion at 5.135%
- $2.75 billion at 5.140%
- $1.50 billion at 5.145%
The total of all bids 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.
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