Econoday Report: 2-Year Note Auction 23, 2008

2008 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 primary dealers (as of November 30, 2007) 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

2.225 %

Highlights
April's 2-year Treasury note auction went very well, stopping out at 2.225 percent and slightly below the 1:00 p.m. when-issued bid and showing strong demand from indirect bidders who took down 34 percent of the offering. The size was the big news of the auction, at a record $30 billion which held back the bid-to-cover ratio that nevertheless came in at a respectable 2.21. Auction sizes have been on the steady increase, reflecting the government's ever increasing need to fund its deficit. But bigger sizes and the ever decreasing value of the dollar are having little effect on demand, at least for today's auction. There was no initial reaction to the results. Tomorrow the Treasury will auction $19 billion of 5-year notes.

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 | Consensus Data Source: Market News International and Thomson Financial