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-three primary dealers (as of July 2006) 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. Released on 08/07/2006 Yield Awarded 4.898 % Highlights Demand was moderate for the Treasury's $21 billion 3-year note auction, sold at a high yield of 4.898 percent that was only slightly over the when-issued note at the bidding deadline. The bid-to-cover ratio was soft at 2.14, down from 2.31 in the last auction in May but in line with a long term average of 2.11. Bidding from retail accounts, such as insurance companies and pension funds, appeared firm as indirect bidders made up 26 percent of accepted competitive bids, about even with the May auction though down from a long-term average of 34 percent. The results aren't spectacular but are successful enough given the approach of tomorrow's FOMC meeting where another rate hike, though seen as unlikely, is still a risk. 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 Consensus Data Source: Market News International Legal Notices | © 1998-2006 Econoday, Inc. All Rights Reserved.