Econoday Report: 2-Year Note Auction 24, 2007

2007 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-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 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

4.930 %

Highlights
Today's $20 billion auction of 2-year Treasury notes proved routine, awarded at a high yield of 4.930 percent that was right in line with late expectations. The bid-to-cover ratio was a very solid 3.03, a plus helping to offset no more than moderate demand from non-dealers who were awarded 27 percent of the auction vs. a long term average closer to 40 percent. Treasuries showed little initial reaction to the results, which nevertheless point to more solid results at tomorrow's $13 billion auction of 5-year notes.

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 | Consensus Data Soruce: Market News International and Thomson Financial