Econoday Report: 3-Year Note Auction 10, 2005

2005 U.S. Economic Events & Analysis

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3-Year Note Auction

Definition
Treasury notes are sold at regularly scheduled public auctions. The competitive bids at these auctions determine the interest rate paid on each Treasury note issue. Twenty-two primary dealers (as of August 2004) are authorized and obligated to submit competitive tenders at Treasury auctions. Dealers can hold, resell, or trade the securities with other firms. Four times a year, the Treasury announces the amount, date and time of the 3-year note auction (usually the first Wednesday of February, May, August and November). These notes are usually auctioned during the second week of these months (often on Tuesday) and are issued (settled) on the 15th of the month. If the 15th falls on a weekend or a holiday, they are issued on the next business day. Why Investors Care

Yield Awarded

3.821 %

Highlights
The first-leg of the Treasury's three-part quarterly refunding was well received by the market. The $22 billion issue was awarded at a high yield of 3.821%, about 1/2 basis point under the when-issued note at the bidding deadline.

The bid-to-cover was especially strong, at 2.38 vs. 2.01 in the prior 3-year auction during February's refunding.

Non-dealers showed solid interest, making up 40.3% of accepted competitive bids. The level is a bit under February's level of 44% but above the long-term average of 38%.

The bond market ticked higher in response to the results that point to another successful refunding for the Treasury, which is very important given the outlook for years of steep budget deficits.

Trends

When the 3-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 3-year note is lower than the fed funds rate, it suggests that investors are anticipating a rate cut -- or at least some stability in policy. This chart shows the average monthly 3-year note yield, not the latest auction results.

Data Source: Haver Analytics

2005 Release Schedule

Released On: 2/8 5/10 8/8 11/8

Released For: Jan Apr Aug Oct