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

Author

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  • Beetsma, Roel
  • Giuliodori, Massimo
  • Hanson, Jesper
  • de Jong, Frank

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. JEL Classification: G11, G12, G14, G18

Suggested Citation

  • Beetsma, Roel & Giuliodori, Massimo & Hanson, Jesper & de Jong, Frank, 2017. "Bid-to-cover and yield changes around public debt auctions in the euro area," Working Paper Series 2056, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20172056
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    References listed on IDEAS

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    Cited by:

    1. Ferrara, Federico Maria, 2024. "Central bank asset purchases and auction cycles revisited: new evidence from the euro area," Working Paper Series 2927, European Central Bank.
    2. Albuquerque, Rui & Costa, José & Faias, Jose, 2022. "Price elasticity of demand and risk-bearing capacity in sovereign bond auctions," CEPR Discussion Papers 17095, C.E.P.R. Discussion Papers.
    3. Fuhrer, Lucas Marc & Giese, Julia, 2021. "Gilt auctions and secondary market dynamics," Finance Research Letters, Elsevier, vol. 38(C).
    4. Beetsma, Roel & Giuliodori, Massimo & Hanson, Jesper & de Jong, Frank, 2020. "Determinants of the bid-to-cover ratio in Eurozone sovereign debt auctions," Journal of Empirical Finance, Elsevier, vol. 58(C), pages 96-120.
    5. Dentler, Alexander & Rossi, Enzo, 2024. "Public debt management announcements: A welfare-theoretic analysis," Economic Modelling, Elsevier, vol. 131(C).
    6. Klingler, Sven & Sundaresan, Suresh, 2023. "Diminishing treasury convenience premiums: Effects of dealers’ excess demand and balance sheet constraints," Journal of Monetary Economics, Elsevier, vol. 135(C), pages 55-69.
    7. Amin, Shehryar & Tédongap, Roméo, 2023. "The changing landscape of treasury auctions," Journal of Banking & Finance, Elsevier, vol. 148(C).
    8. Andras Lengyel & Massimo Giuliodori, 2022. "Demand Shocks for Public Debt in the Eurozone," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(7), pages 1997-2028, October.
    9. Beetsma, Roel & Giuliodori, Massimo & Hanson, Jesper & de Jong, Frank, 2021. "The maturity of sovereign debt issuance in the euro area," Journal of International Money and Finance, Elsevier, vol. 110(C).
    10. Aitor Erce & Xu Jiang & Diana Zigraiova, 2020. "Quantifying Risks to Sovereign Market Access: Methods and Challenges," Globalization Institute Working Papers 377, Federal Reserve Bank of Dallas.
    11. Bats, Joost & Hoondert, Jurian J.A., 2022. "The relationship between central bank auctions and bill market liquidity," Working Paper Series 2708, European Central Bank.

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    More about this item

    Keywords

    bid-to-cover ratios; primary and secondary markets; primary dealers; public debt auctions; volatility;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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