Example
For example, suppose debt managers are seeking to raise $10 billion in ten-year notes with a 5.130% coupon, and, in aggregate, they have received seven bids from lenders as follows: *Bid 1 for $1.00 billion at 5.115% *Bid 2 for $2.50 billion at 5.120% *Bid 3 for $3.50 billion at 5.125% *Bid 4 for $4.50 billion at 5.130% *Bid 5 for $3.75 billion at 5.135% *Bid 6 for $2.75 billion at 5.140% *Bid 7 for $1.50 billion at 5.145% The total of all bids received is $19.5 billion, and the number of bids accepted would be $10 billion, therefore leading to a bid-to-cover ratio of 1.95 (calculated by the value method). Since the managers are interested in raising the cheapest debt possible, bids 1, 2, 3 will be covered in full ($7 billion). Bid 4 will be partially covered ($3 billion out of $4.5 billion). Bids 5, 6, 7 will be rejected. The final coupon will be fixed at 5.130% (the rate of the last bid accepted) for all the bids covered.See also
* Dutch auction * Overallotment optionReferences
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