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

4.000 %

Highlights
Demand once again was very strong for the Treasury's monthly 2-year note auction. The offering, at $18 billion as it has been since February, was awarded at a high yield of 4.000 percent, about 1 basis point below the when-issued note at the 1:00 p.m. ET bidding deadline and as much as 3 full basis points below expectations earlier in the day. The bid-to-cover was a very strong 3.29 with plenty of interest from non-dealers as indirect bidders made up 36 percent of the $17.3 billion in accepted competitive bids. Dislocation in the credit market, which has led to flight to safety, has made strong Treasury auctions routine.

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