2017 Economic Calendar
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10-Yr Note Auction  
Released On 10/11/2017 1:00:00 PM For 10/11/2017 1:00:00 PM
Auction Results
Total Amount$20 B 
Coupon Rate2.250% 
Bid/Cover2.54 
Yield Awarded2.346% 

Highlights
Results are solid for the monthly 10-year note auction, where coverage, at 2.54, was the strongest of the last four auctions of the key Treasury note and the bidding was on the tight side, pulling down the high yield to the awarded 2.346 percent, about 0.3 basis points below the 1:00 bid. End investor demand was the best since March, judging from the 75 percent non-dealer allocation. The 2.346 percent high yield was 26.6 basis points above last month's rate and the highest since the May.

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. The level of demand for an auction is measured by coverage which is the ratio of bids tendered to bids accepted. The higher this number, the stronger the demand. A group of securities dealers, known as primary dealers, are authorized and obligated to submit competitive tenders at Treasury auctions. Dealers can hold the notes, resell the notes to their clients or trade them with other securities firms. Typically, the New York Fed approves about 20 securities firms to be primary dealers but that number dropped sharply during the 2008 financial crisis as some were merged into other firms or went bankrupt. The Fed has been rebuilding that number regularly and the latest list can be found here. The Treasury announces the amount, date and time of the 10-year note auction monthly. 10-year notes are announced around the first week of the month and then auctioned the following week. Generally, the 10-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. (Department of the Treasury)  Why Investors Care
 
[Chart]

Data Source: Haver Analytics
 
[Chart]
Between 2000 and 2011, the spread between the 10-year note and the fed funds rate averaged 173 basis points, while the average spread for the period covered by the chart, which started in January 2012, was 185 points. With the Federal Reserve doing its utmost to stimulate the economy by keeping the fed funds rate unchanged at just barely above zero until December 2015, the spread reached a peak of 288 basis points for the period in January 2014, when it began a meandering decline that reached a low of 106 basis points in September 2017. The spread was probably kept lower than it would have been had it not been for Quantitative Easing, whereby the Federal Reserve put a damper on the yields of longer-maturity treasuries while purchasing, in three stages, nearly $4 trillion of U.S. treasuries and mortgage- backed securities. Nevertheless, the spread continued to decline even after Quantitative Easing purchases ended in October 2014, perhaps in part due to the Federal Reserve's maintenance of the balance sheet size through continued purchases equalling any redemption amounts until October 2017, when the Federal Reserve commenced a gradual program to bring down the size of the balance sheet by limiting the redemption purchases. Historically, the spread has widened if the market's expectations of economic acceleration or rising price inflation was out of sync with a fed funds rate that was perceived as too low and accomodative, and shrank if expectations of economic slow growth or weakness and low or declining inflation were accompanied by a fed funds rate that was seen as too high or restrictive. This chart shows the high yield awarded at monthly 10- year note auctions since January 2012, including the latest auction results.
Data Source: Haver Analytics
 

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