Econoday Report: 2-Year Note Auction 21, 2007

2007 U.S. Economic Events & Analysis

Resource Center » U.S. & International Recaps | Release Dates | Why Investors Care | Today's Calendar

2-Year Note Auction

Definition
Treasury notes are sold at regularly scheduled public auctions. Competitive bids at these auctions determine the interest rate paid on each Treasury note issue. Twenty-three primary dealers (as of July 2006) are authorized and obligated to submit competitive tenders at Treasury auctions. Dealers can hold, resell, or trade the securities with other firms. The Treasury usually announces the size, date and time of the monthly two-year note auction on the third or fourth Monday of each month, with the auction taking place two days later. The 2-year note is issued (settled) on the last day of the month. In the event of the last day falling on a weekend or holiday, the security is settled on the first business day of the subsequent month. Why Investors Care

Yield Awarded

4.830 %

Highlights
The smaller $18 billion size helped boost results of the month's 2-year Treasury auction where non-dealers took a strong 52 percent of the offering. The 52 percent is just off November's year-and-a-half high of 56 percent but is well above the 27 percent level in January and a long-term average of 37 percent. High yield was right in line with expectations at 4.830 percent with the bid-to-cover ratio at a solid 3.04.

The prospect of dwindling Treasury issuance, the result of the narrowing budget deficit, points to firmer and firmer results for future auctions -- a big plus for the whole bond market which also of course includes corporate debt and agency debt. Treasuries showed little initial reaction to the results. The Treasury will auction $13 billion of 5-year notes tomorrow.

Trends

When the 2-year note is higher than the federal funds rate, it usually suggests that bond investors are expecting the federal funds rate to rise. Conversely, when the 2-year note is lower than the fed funds rate, it suggests that investors are anticipating a rate cut.

Data Source: Haver Analytics