Econoday Report: 2-Year Note Auction 27, 2008

2008 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 primary dealers (as of November 30, 2007) 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

2.045 %

Highlights
Demand was moderate at best for the Treasury's $26 billion auction of 2-year notes. The 2.045 percent stop-out rate was in line with pre-auction talk but the bid-to-cover ratio was light at 2.14, partly a reflection however of the large offering size. Demand from indirect bidders was also light at 20 percent as were non-competitive bids at $583 million, down from a $700 million average. The Treasury will auction $16 billion of five year notes tomorrow.

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 Source: Market News International and Thomson Financial