Real Bid to Cover in Government Bond Auctions


The Real Bid to Cover (or adjusted bid to cover) is a statistic that we calculate for some government bond auctions to add more clarity to auction results and make results more comparable in auctions where a government doesn’t sell all of the new bonds being issued and instead retains some of the bonds for themselves.  The most high profile example of an issuer that does this regularly is Germany.

For more general information on reading government bond auction results beyond just the bid to cover data, check out our guide.

Some countries routinely hold back a portion of bonds issued in an auction.  This means we can calculate two different bid to cover numbers:

-The Official Bid to Cover which is the normal calculation – ie the ratio of the amount of bids in the auction vs the amount of bonds sold.  This is normally the figure quoted by the newswires etc

Official Bid to Cover Formula

-The Real Bid to Cover which is the ratio of the amount of bids in the auction vs the total amount on offer (or the total bonds issued, including what the issuer held back)

Real Bid to Cover Formula

Analysis of the real bid to cover is similar to the official bid to cover – ie higher the cover is, generally the better the auction.  To put the result in context, traders compare the real bid to cover for an auction against covers in previous auctions in the bond, or bonds with a similar maturity.  Some compare the cover to the average from the last 3 or 4 auctions.  If it’s higher, that would indicate a strong auction while lower would indicate a weaker auction.

Why bother calculating Real Bid to Cover?  In cases where a country is retaining some of the bonds being issued in the auction process, they may retain a different percentage of the issued bonds in one auction vs another.  The official bid to cover can be skewed higher or lower versus prior auctions simply by retaining a different percentage of the auction bonds.  The real bid to cover is not skewed in this way as it adjusts for the amount being retained, and so the results of one auction can be more directly compared to the results of a prior auction.

Real Bid to Cover can have a value below 1.0 – ie total bids in the auction were below the total amount of bonds being issued (and the issuer retained the rest for themselves).  This indicates a technically failed auction as the issuer could not have sold all of the bonds issued even if they wanted to.  Traditionally this was an unusual result and had had negative implications for the market but, in the case of Germany, it has been more common over the last couple of years and is no longer so noteworthy.

For quick insight on real bid to cover stats for German and other government bond auctions, check out the InTouch Fixed Income product.


Author: Michael Colman