Econoday Report: 2-Year Note Auction 26, 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

1.761 %

Highlights
The Treasury's jumbo size $28 billion auction of 2-year notes went very well with the bid-to-cover ratio, given the size of the auction, relatively strong at 2.44 and with a tight 4 basis point spread between the median and low bid. Indirect bidding was the strongest in six months, and the stop-out rate of 1.761 percent was nearly 3 basis points below bids at the 1:00 p.m. ET bidding deadline. Treasury yields slipped further in welcome reaction to the results. Tomorrow the Treasury will auction $18 billion of 5-year notes, again another large offering that reflects the government's growing need for funds.

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