Definition
Treasury notes are sold at regularly scheduled public auctions. The 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 announces the amount, date and time of the 5-year note auction monthly. Eight times a year, the 5-year notes are announced around the second week of the month (usually on Monday) and then auctioned two days later. In February, May, August and November, they are announced on the first Wednesday of the month and auctioned during the second week of the month (usually on Wednesday). In all cases, the 5-year notes are issued (settled) on the 15th of the month, unless it falls on a weekend or holiday, and then they are issued on the next business day. Why Investors Care
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Highlights
Treasury auctions have been going so well it's rare to find one that's on the soft side. Today's 5-year note auction was awarded at a high yield of 4.535 percent, about 2 basis points above expectations. The bid-to-cover was also soft, at 2.14 vs. a long-term average of just over 2.30. Demand from non-dealers, who took only 16.7 percent of the auction, was definitely soft, in fact the lowest percentage in nearly four years.
Despite the weakness, underlying demand for Treasuries, especially from Asia, remains extremely strong. Treasuries did edge lower in reaction to the results, likely the only reaction to the auction that we'll see in today's financial markets.
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