The 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 may be computed in two ways: either the number of bids received divided by the number of bids accepted, or the value of bids received divided by the value of bids accepted.
The higher the ratio, the higher the demand. A ratio above 2.0 indicates a successful auction with aggressive bids. A lower reading indicates weak demand and is said to have a long tail (a wide spread between the average and the high yield).
This particularly important in today’s bond market as it is a focus on demand for European debt. The lower the bid-to-cover, the less demand there is. This could cause yields to rise which would make refunding harder for the indebted nations.
