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.