Econoday Report: 2-Year Note Auction 26, 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

4.906 %

Highlights
The monthly 2-year auction was mostly positive, awarded at a 4.906 percent high yield that was about 1 basis point under expectations. The bid-to-cover was also strong at 2.80 vs. 2.53 and against a long term average of about 2.20. On the less positive side was lukewarm interest from non-dealers, who made up only 28.8 percent of accepted competitive bids against a long-term average of about 37 percent. But caution is no surprise given uncertainties over recent fallout from the subprime mortgage market. There was little 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 | Consensus Data Soruce: Market News International and Thomson Financial