Econoday Report: 2-Year Note Auction 27, 2008

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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

1.600 %

Highlights
Demand was very heavy for the Treasury's monthly 2-year note auction. The stop-out rate of 1.600 percent is nearly 5 basis points below the 1:00 p.m. bid. The bid-to-cover ratio of 2.49 is strong for any 2-year auction let alone one with a record $34 billion auction size. Bidding from non-dealers was especially strong with the group taking 42 percent of the auction. Money moved into the Treasury market following 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

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