Econoday Report: 3-Year Note Auction 8, 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

4.458 %

Highlights
The U.S. Treasury auctioned $18 billion of 3 year notes with a coupon rate of 3.75 percent and an awarded yield of 4.458 percent. The yield is 25 basis points higher than at the last auction in August. This represents the generally higher interest rate environment we have seen in the past few months -- and the additional Fed rate hikes that have taken place since August. The auction should be viewed as relatively successful since WI trading had pegged the yield at 4.458 percent and expectations prior to the auction were looking for yields in the range of 4.45 to 4.46 percent according to market pundits. And indeed, the bid-to-cover ratio increased from the August auction and was the highest for this issue in the past three years.

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