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-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 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. Released on 01/25/2006 Yield Awarded 4.427 % Highlights The U.S. Treasury auctioned $22 billion of 2-year notes this afternoon with a coupon rate of 4.375 percent and a high yield of 4.427 percent. Given the drop in the bid-to-cover ratio, it appears that demand for this issue was not as strong as last month, although at 2.11, it is in line with the long term average. The 2-year note auction, however, was deemed disappointing by market players and the Treasury market weakened after the 2-year auction failed to meet expectations. The high yield of 4.427 percent was outside the expected range of 4.413 to 4.42 percent. Obviously, the rise in the 2-year note reflects expectations that the Fed will raise the federal funds rate at least once more -- at the end of this month. Until recently, investors anticipated that the January 31 rate hike might be the last one for a while. But recent economic figures have caused more uncertainty in the market and some economists expect more than one hike this year. 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 Legal Notices | © 1998-2006 Econoday, Inc. All Rights Reserved.