Econoday Report: 2-Year Note Auction 29, 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

3.650 %

Highlights
The monthly two-year note auction proved routine, producing a high yield of 3.650% that was the same as the when-issued note at the bidding deadline. Coverage for the $20 billion auction was solid at 2.23, though down a bit from 2.36 in last month's $22 billion auction. Bidding by non-dealers was weak as indirect bidders made up only 28% of accepted competitive bids against 37% in the May auction. The bond market dipped in initial reaction to the results.

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