Definition
Treasury notes are sold at regularly scheduled public auctions. The competitive bids at these auctions determine the interest rate paid on each Treasury note issue. Twenty primary dealers are authorized and obligated to submit competitive tenders at Treasury auctions. Dealers can hold, resell, or trade the securities with other firms. The Treasury announces the amount, date and time of the 10-year note auction four times a year - on the first Wednesday of February, May, August and November. The note is auctioned the following week, usually on Thursday and it is issued (settled) on the 15th of the month. If the 15th falls on a weekend or a holiday, it is issued on the next business day. The U.S. Treasury also announces a re-opening* of the 10-year note at the beginning (usually the second week of the month) of March, June, September, and December. The 10-year note is then auctioned later in the week (usually on Thursday) and issued on the 15th of the month with the same exception if it is a weekend or holiday.
**According to the Treasury, "In a reopening, we issue an additional amount of a previously-issued note. The reopened security has the same maturity date and interest rate as the original security; however, compared to the original security, the reopened security has a different issue date and usually a different purchase price. If the price determined at the reopening exceeds the par value of the security, you will owe a premium. Also, when buying a reopened security, you must pay the interest the security earned before you bought it; however, we will pay this interest -- it's called "accrued interest" -- back to you in your first semiannual interest payment." Why Investors Care
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Highlights
The run of soft Treasury auctions ended with today's reopening of the August 10-year note. The bid-to-cover ratio for the $12 billion auction, at 2.51, is unusually strong for a reopening which usually doesn't attract much interest. The $12 billion auction size is $1 billion larger than the last reopening in June when the bid-to-cover was only 2.33. Demand for today's auction was particularly strong from indirect bidders, that is non-dealers which include buy-and-hold accounts such as pension funds and insurance companies. Money moved into the Treasury market in reaction to the results.
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