Bid-to-Cover and Yield Changes Around Public Debt Auctions in the Euro Area
49 Pages Posted: 16 May 2017
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Bid-to-Cover and Yield Changes Around Public Debt Auctions in the Euro Area
Bid-to-Cover and Yield Changes Around Public Debt Auctions in the Euro Area
Date Written: May 8, 2017
Abstract
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.
Keywords: public debt auctions, bid-to-cover ratios, primary and secondary markets, primary dealers, volatility
JEL Classification: G11, G12, G14, G18
Suggested Citation: Suggested Citation