Econoday Report: 2-Year Note Auction 28, 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

2.640 %

Highlights
Demand was moderate for the monthly 2-year note auction which stopped out at 2.640 percent, about 1 basis point above late auction talk. Indirect bidders took down only 22 percent of the auction, well off the long term average of 35 percent. The large $30 billion size hurt the results, keeping the bid-to-cover down at 2.28 but a level still in line with recent auctions which have all been large. Government receipts are slowing and outlays are rising, pointing to ever larger auctions sizes in the months ahead. Tomorrow the Treasury will auction $19 billion 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 Source: Market News International and Thomson Financial