Econoday Report: 2-Year Note Auction 28, 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

3.159 %

Highlights
Despite uncertainty in the credit market and strong demand for U.S. Treasuries, the Treasury's $20 billion 2-year note auction went poorly. Bid-to-cover was the lowest in more than a year and the for the first time in more than a year the award yield, 3.159 percent, was above the when-issued note at the 1:00 p.m. ET deadline. Indirects made up a light 24 percent share of bidders, better than the prior auction but still weak. Treasuries eased in immediate reaction to the results which may lower expectations for tomorrow's $13 billion 5-year 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