Econoday Report: 2-Year Note Auction 24, 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

2.922 %

Highlights
Results were very strong for the monthly 2-year Treasury note auction that produced a bid-to-cover of 2.64, a solid ratio given the large $30 billion auction size. The auction stopped out at 2.922 percent, more than one full basis point below the 1:00 p.m. bid. Demand from indirect bidders was especially strong with the group taking 29 percent of the auction. Money moved into the Treasury market in immediate 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 Source: Market News International and Thomson Financial