How Treasury Auctions Work: Bid-to-Cover, Tails and Indirect Bidders

The U.S. Treasury sells notes and bonds in single-price auctions. Bids are accepted from the lowest yield up until the offering is filled, and every winner pays the price set by the highest accepted yield, according to TreasuryDirect. Last week Treasury sold $119 billion this way in three auctions, and their results show how to read the key measures.

How does a Treasury auction work?

Treasury first announces the amount, dates and bidding deadlines. Last week, noncompetitive bids closed at noon and competitive bids at 1 p.m., according to Treasury's auction data. Noncompetitive bidders accept whatever yield the auction sets, up to $10 million each, and Treasury fills those bids first. Competitive bidders name a yield, and one bidder can win no more than 35% of the offering, minus any net long position. Treasury then accepts competitive bids "from lowest to highest" yield until the whole amount is awarded. "All successful bidders get the same rate, yield, or discount margin as the highest accepted bid," TreasuryDirect says.

How to read the results release

Each results release lists:

High yield: the highest accepted yield. All bids at lower yields are filled in full.
Allotted at high: the share of bids at exactly the high yield that got filled.
Median yield: half of the accepted competitive bids were at or below this yield.
Bid-to-cover ratio: bids divided by the amount accepted, with the Fed's purchases for its System Open Market Account (SOMA) left out. For the Oct. 8 bond sale, Treasury showed $55,913,353,100 ÷ $22,000,012,700 = 2.54.

The release also splits accepted competitive bids three ways. Primary dealers and direct bidders bid for their own accounts. Indirect bidders bid through a primary dealer or direct submitter; foreign central banks bidding through the New York Fed count here. TreasuryDirect says these labels do not show whether a bidder is foreign or domestic.

Last week's auctions, side by side

Measure	3-year, Oct. 6	10-year reopening, Oct. 7	30-year reopening, Oct. 8
Amount	$58 billion	$39 billion	$22 billion
High yield	4.932%	5.300%	5.618%
Median yield	4.880%	5.255%	5.567%
Allotted at high	8.35%	57.60%	26.77%
Bid-to-cover	2.62	2.77	2.54
Primary dealers	10.7%	2.5%	6.8%
Direct bidders	31.7%	17.1%	20.9%
Indirect bidders	57.6%	80.3%	72.3%

Source: TreasuryDirect auction data. Bidder shares are calculated by Capital Finance Bureau from accepted competitive tenders.

Dealers took 2.5% of the 10-year sale, the smallest share of the three. The 30-year sale had the lowest bid-to-cover ratio. Our briefs on the 3-year auction and the 30-year auction compare each sale with September.

The 10-year and 30-year sales were reopenings: more of an existing security, with the same maturity and coupon, usually at a different price, according to TreasuryDirect.

What is an auction tail?

A tail is "the highest yield accepted at auction less the security's when-issued yield" just before the auction closes, according to a 2021 Dallas Fed note. The when-issued yield is set in trading before the security is issued. A positive tail means the auction cleared at a higher yield than traders expected. The note calls the tail "an imperfect measure" because it misses news from the hours before the sale.

Treasury's results releases do not list when-issued yields, so tails come from market data. The gap between the high and median yields, about 0.05 percentage point at all three sales last week, is a different measure. It compares the top accepted yield with the middle of the accepted bids.

What's next?

Treasury's schedule shows 13-week, 26-week and 6-week bill auctions on Tuesday, Oct. 13, the day after Columbus Day. Thirteen- and 26-week bills are usually sold on Mondays. A 20-year bond reopening is set for Oct. 21 and a 5-year note for Oct. 22, both to be announced Oct. 15. For the economic backdrop, see our September CPI preview and the Capital Markets section.