Econoday Report: 2-Year Note Auction 25, 2005

2005 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-two primary dealers (as of August 2004) 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

3.615 %

Highlights
The U.S. Treasury's 2-year note auction proved solid, producing a bid-to-cover of 2.36 and sold at a high rate of 3.615% that was a bit under the when-issued note at the 1:00 p.m. ET bidding deadline.

Direct bidders represented a huge 25% of accepted bids, once again indicating activity of a hedge fund. Indirect bidders were also strong, representing 37% of bids, the highest level since November.

The bond market showed little reaction to the results, which nevertheless point to continued appetite for new issues.

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