IDEAS home Printed from https://ideas.repec.org/a/eee/empfin/v58y2020icp96-120.html
   My bibliography  Save this article

Determinants of the bid-to-cover ratio in Eurozone sovereign debt auctions

Author

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

Abstract

Building on a unique dataset of Eurozone sovereign debt auctions, this paper analyzes the determinants of their bid-to-cover ratios, which is the most common measure of the outcome of an auction. We find that the secondary market yield on the same maturity instrument, past domestic and foreign bid-to-cover ratios and occasionally the number of primary dealers tend to exert a positive effect on the current bid-to-cover ratio, while the opposite is the case for the supply and the volatility of the yield. The results thus suggest that past information helps to predict the demand in auctions.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:empfin:v:58:y:2020:i:c:p:96-120
    DOI: 10.1016/j.jempfin.2020.05.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927539820300190
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jempfin.2020.05.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Carolin Pflueger & Emil Siriwardane & Adi Sunderam, 2018. "A Measure of Risk Appetite for the Macroeconomy," NBER Working Papers 24529, National Bureau of Economic Research, Inc.
    2. Dimitri Vayanos & Jean‐Luc Vila, 2021. "A Preferred‐Habitat Model of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 89(1), pages 77-112, January.
    3. Beetsma, Roel & Giuliodori, Massimo & de Jong, Frank & Widijanto, Daniel, 2016. "Price effects of sovereign debt auctions in the euro-zone: The role of the crisis," Journal of Financial Intermediation, Elsevier, vol. 25(C), pages 30-53.
    4. Fernando A. Broner & Guido Lorenzoni & Sergio L. Schmukler, 2013. "Why Do Emerging Economies Borrow Short Term?," Journal of the European Economic Association, European Economic Association, vol. 11, pages 67-100, January.
    5. Lieven Baele & Geert Bekaert & Koen Inghelbrecht & Min Wei, 2020. "Flights to Safety," The Review of Financial Studies, Society for Financial Studies, vol. 33(2), pages 689-746.
    6. 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.
    7. Zhiguo He & Arvind Krishnamurthy, 2013. "Intermediary Asset Pricing," American Economic Review, American Economic Association, vol. 103(2), pages 732-770, April.
    8. Claeys, Peter & Vašíček, Bořek, 2014. "Measuring bilateral spillover and testing contagion on sovereign bond markets in Europe," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 151-165.
    9. Michael J. Fleming & Giang Nguyen & Joshua V. Rosenberg, 2007. "How do treasury dealers manage their positions?," Staff Reports 299, Federal Reserve Bank of New York.
    10. Nina Boyarchenko & David O. Lucca & Laura Veldkamp, 2015. "Taking orders and taking notes: dealer information sharing in financial markets," Staff Reports 726, Federal Reserve Bank of New York.
    11. Matti Keloharju & Kjell G. Nyborg & Kristian Rydqvist, 2005. "Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions," Journal of Finance, American Finance Association, vol. 60(4), pages 1865-1902, August.
    12. Lyons, Richard K., 1995. "Tests of microstructural hypotheses in the foreign exchange market," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 321-351.
    13. Brutti, Filippo & Sauré, Philip, 2015. "Transmission of sovereign risk in the Euro crisis," Journal of International Economics, Elsevier, vol. 97(2), pages 231-248.
    14. Bing Han & Francis A. Longstaff & Craig Merrill, 2007. "The U.S. Treasury Buyback Auctions: The Cost of Retiring Illiquid Bonds," Journal of Finance, American Finance Association, vol. 62(6), pages 2673-2693, December.
    15. Bhanot, Karan & Burns, Natasha & Hunter, Delroy & Williams, Michael, 2014. "News spillovers from the Greek debt crisis: Impact on the Eurozone financial sector," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 51-63.
    16. Beetsma, Roel & Giuliodori, Massimo & Hanson, Jesper & de Jong, Frank, 2018. "Bid-to-cover and yield changes around public debt auctions in the euro area," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 118-134.
    17. Cammack, Elizabeth B, 1991. "Evidence on Bidding Strategies and the Information in Treasury Bill Auctions," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 100-130, February.
    18. Spindt, Paul A. & Stolz, Richard W., 1992. "Are US treasury bills underpriced in the primary market?," Journal of Banking & Finance, Elsevier, vol. 16(5), pages 891-908, September.
    19. Spindt, Paul A. & Stolz, Richard W., 1989. "The expected stop-out price in a discriminating auction," Economics Letters, Elsevier, vol. 31(2), pages 133-137, December.
    20. Nina Boyarchenko & David O. Lucca & Laura Veldkamp, 2016. "Taking Orders and Taking Notes: Dealer Information Sharing in Treasury Markets," NBER Working Papers 22461, National Bureau of Economic Research, Inc.
    21. Dong Lou & Hongjun Yan & Jinfan Zhang, 2013. "Anticipated and Repeated Shocks in Liquid Markets," The Review of Financial Studies, Society for Financial Studies, vol. 26(8), pages 1891-1912.
    22. Catherine Mann & Oren Klachkin, 2015. "Has Quantitative Easing Affected the U.S. Treasury Auction Market?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(1), pages 135-146, March.
    23. Song, Zhaogang & Zhu, Haoxiang, 2018. "Quantitative easing auctions of Treasury bonds," Journal of Financial Economics, Elsevier, vol. 128(1), pages 103-124.
    24. Goldreich, David, 2007. "Underpricing in Discriminatory and Uniform-Price Treasury Auctions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(2), pages 443-466, June.
    25. de Jong,Frank & Rindi,Barbara, 2009. "The Microstructure of Financial Markets," Cambridge Books, Cambridge University Press, number 9780521867849.
    26. He, Zhiguo & Kelly, Bryan & Manela, Asaf, 2017. "Intermediary asset pricing: New evidence from many asset classes," Journal of Financial Economics, Elsevier, vol. 126(1), pages 1-35.
    27. Albert S. Kyle, 1989. "Informed Speculation with Imperfect Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(3), pages 317-355.
    28. Yuriy Gorodnichenko & Walker Ray, 2017. "The Effects of Quantitative Easing: Taking a Cue from Treasury Auctions," NBER Working Papers 24122, National Bureau of Economic Research, Inc.
    29. Ang, Andrew & Longstaff, Francis A., 2013. "Systemic sovereign credit risk: Lessons from the U.S. and Europe," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 493-510.
    30. Kjell G. Nyborg & Kristian Rydqvist & Suresh M. Sundaresan, 2002. "Bidder Behavior in Multiunit Auctions: Evidence from Swedish Treasury Auctions," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 394-424, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shida, Jakob, 2023. "Primary market demand for German government bonds," Journal of International Money and Finance, Elsevier, vol. 137(C).
    2. Bats, Joost & Hoondert, Jurian J.A., 2022. "The relationship between central bank auctions and bill market liquidity," Working Paper Series 2708, European Central Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Beetsma, Roel & Giuliodori, Massimo & Hanson, Jesper & de Jong, Frank, 2018. "Bid-to-cover and yield changes around public debt auctions in the euro area," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 118-134.
    2. 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.
    3. 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.
    4. Fuhrer, Lucas Marc & Giese, Julia, 2021. "Gilt auctions and secondary market dynamics," Finance Research Letters, Elsevier, vol. 38(C).
    5. Roel Beetsma & Massimo Giuliodori & Jesper Hanson & Frank De Jong, 2018. "Cross‐Border Auction Cycle Effects of Sovereign Bond Issuance in the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(7), pages 1401-1440, October.
    6. José Miguel Cardoso da Costa & Rui Albuquerque, 2023. "Price elasticity of demand and risk-bearing capacity in sovereign bond auctions," Working Papers w202302, Banco de Portugal, Economics and Research Department.
    7. He, Zhiguo & Nagel, Stefan & Song, Zhaogang, 2022. "Treasury inconvenience yields during the COVID-19 crisis," Journal of Financial Economics, Elsevier, vol. 143(1), pages 57-79.
    8. Song, Zhaogang & Zhu, Haoxiang, 2018. "Quantitative easing auctions of Treasury bonds," Journal of Financial Economics, Elsevier, vol. 128(1), pages 103-124.
    9. Sigaux, Jean-David, 2018. "Trading ahead of treasury auctions," Working Paper Series 2208, European Central Bank.
    10. Cafiso, Gianluca, 2019. "Sovereign bond markets when auctions take place: Evidence from Italy," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 406-430.
    11. Francisco Alvarez & Cristina Mazon, 2019. "Overpricing in Spanish Treasury Auctions," Annals of Economics and Finance, Society for AEF, vol. 20(1), pages 199-220, May.
    12. Jason Allen & Jakub Kastl & Milena Wittwer, 2020. "Maturity Composition and the Demand for Government Debt," Staff Working Papers 20-29, Bank of Canada.
    13. Saki Bigio & Galo Nuño & Juan Passadore, 2019. "A framework for debt-maturity management," Working Papers 1919, Banco de España.
    14. Corradin, Stefano & Maddaloni, Angela, 2020. "The importance of being special: Repo markets during the crisis," Journal of Financial Economics, Elsevier, vol. 137(2), pages 392-429.
    15. Saki Bigio & Galo Nuño & Juan Passadore, 2023. "Debt-Maturity Management with Liquidity Costs," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 1(1), pages 119-190.
    16. Beetsma, Roel & de Jong, Frank & Giuliodori, Massimo & Hanson, Jesper, 2016. "Domestic and Cross-Border Auction Cycle Effects of Sovereign Bond Issuance in the Euro Area," CEPR Discussion Papers 11122, C.E.P.R. Discussion Papers.
    17. Zhaogang Song & Haoxiang Zhu, 2014. "QE Auctions of Treasury Bonds," Finance and Economics Discussion Series 2014-48, Board of Governors of the Federal Reserve System (U.S.).
    18. Shida, Jakob, 2023. "Primary market demand for German government bonds," Journal of International Money and Finance, Elsevier, vol. 137(C).
    19. 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).
    20. Jason Allen & Jakub Kastl & Milena Wittwer, 2020. "Primary Dealers and the Demand for Government Debt," Working Papers 2020-27, Princeton University. Economics Department..

    More about this item

    Keywords

    Eurozone public debt auctions; Bid-to-cover; Maturity; Demand; Supply; Yield; 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:empfin:v:58:y:2020:i:c:p:96-120. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jempfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.