Econoday Report: 5-Year Note Auction 9, 2005

2005 U.S. Economic Events & Analysis

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5-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. The Treasury announces the amount, date and time of the 5-year note auction monthly. Eight times a year, the 5-year notes are announced around the second week of the month (usually on Monday) and then auctioned two days later. In February, May, August and November, they are announced on the first Wednesday of the month and auctioned during the second week of the month (usually on Wednesday). In all cases, the 5-year notes are issued (settled) on the 15th of the month, unless it falls on a weekend or holiday, and then they are issued on the next business day. Why Investors Care

Yield Awarded

4.080 %

Highlights
Demand was strong for the monthly 5-year Treasury auction which was sold at a high yield of 4.080%, two basis points below the when-issued note at the 1:00 p.m. ET deadline.

The bid-to-cover ratio also showed strength at 2.58, well above the 12-month average of 2.28.

Demand from Asian central banks appeared strong as indirect bidders accounted for 42.9% of accepted competitive bids, above a long-term average of 39%.

The coupon rate offers an easy signpost for changes in the Treasury market. The coupon for the 5-year note last month was 3.5%, while this month it's up a full 50 basis points to 4.0%. Future coupons are also likely to rise given the Federal Reserve's ongoing policy of "measured" rate hikes.

The results are strong and may help lift the Treasury market in afternoon trading, especially if Beige Book results point away from inflationary pressures.

The results may also raise expectations for tomorrow's 9-1/2 year Treasury auction (a reopening of the February 10-year note). Note that reopenings, at least until now, have drawn very weak interest.

Trends

This chart reflects the monthly average yields for 5-year notes in the secondary market. These could be at slight odds with the auction averages in the primary market.

Data Source: Haver Analytics

2005 Release Schedule

Released On: 1/12 2/9 3/9 4/13 5/11 6/8 7/13 8/10 9/7 10/12 11/9 12/7

Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Oct Oct Nov