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
2.820 %

Highlights
Demand was strong for the Treasury's record size $31 billion 2-year note auction. Indirect bidding was heavy with the group taking 37 percent of the sale, well up from 29 percent in June and the highest level since April last year. The bid-to-cover ratio was 2.42, a bit higher than the second quarter average when auction sizes were a bit smaller at $30 billion. The stop-out rate of 2.820 percent was right at the 1:00 p.m. ET bid. Today's results are a plus for tomorrow's 5-year Treasury auction which, like today's auction, is the largest ever. Larger and larger Treasury auctions appear to be a certainty given the widening fiscal deficit, but so far at least demand has remained strong. There was no significant initial reaction in the Treasury market, but the results may help pull down yields through the afternoon.

Trends
[grid]
[Chart] 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

 
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