DP11932 Bid-to-cover and yield changes around public debt auctions in the euro area

Author(s): Roel Beetsma, Frank de Jong, Massimo Giuliodori, Jesper Hanson
Publication Date: March 2017
Keyword(s): bid-to-cover ratios, primary and secondary markets, primary dealers, public debt auctions, volatility
JEL(s): G11, G12, G14, G18
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11932

Earlier research has shown that euro-area primary public debt markets affect secondary markets. We find that more successful auctions of euro area public debt, as captured by higher bid-to-cover ratios, lead to lower secondary-market yields following the auctions. This effect is stronger when market volatility is higher. We rationalize both findings using a simple theoretical model of primary dealer behavior, in which the primary dealers receive a signal about the value of the asset auctioned.