Econoday Report: 2-Year Note Auction 25, 2007

2007 U.S. Economic Events & Analysis

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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

4.735 %

Highlights
Demand was respectable for the month's 2-year note auction which was sold at a high yield of 4.735 percent, about 1/2 basis point under the yield at the 1:00 p.m. ET bidding deadline. The bid-to-cover ratio was firm at 2.59 but still under 2.80 in the June auction. Non-dealer participation was no more than moderate at 29%, the same rate as June but below a long term average of nearly 40 percent. Treasuries showed little reaction to the results. Today's auction follows very strong results for yesterday's 20-year TIPS auction and come ahead of tomorrow's 5-year note auction.

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