Econoday Report: 2-Year Note Auction 24, 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

2.115 %

Highlights
Demand was very strong for the monthly 2-year note auction where the stop-out rate came in 2 basis points below the 1:00 p.m. ET bid at 2.115 percent. The bid-to-cover of 2.21 was very strong given the enormous $34 billion auction size. Enormous auction sizes definitely look to become the norm given the certain prospect of a gapping budget deficit. But the ever-rising supply of Treasuries has yet to hurt demand which is especially strong this afternoon as credit markets once again seize up, this time in reaction to political resistance to the Treasury's $700 billion mortgage-backed bailout plan.

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