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

4.404 %

Highlights
Dealers took up more than their share of the Treasury's $20 billion 2-year note auction, accounting for about 69% of competitive bids vs. a recent average of roughly 60%. Still results were solid with the bid-to-cover at 2.42 vs. 2.16 in the November auction. The high yield of 4.404% was right at expectations and compares with 4.408% for the when-issued note at the 1:00 p.m. ET bidding deadline. Bonds moved higher in reaction despite the weak customer showing, which is not a surprise given thin year-end conditions and interest.

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