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-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. 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 07/26/2006 Yield Awarded 5.090 % Highlights Demand proved solid for the month's auction of 2-year Treasury notes, sold at a high yield of 5.090 percent, right in line with late expectations. Coverage at 2.03 was on the soft side but indirect bidding, at 33.8 percent, was on the strong side and may reflect strong foreign demand. Note for the first time since May last year, the coupon, at 5.000 percent, is lower than the prior month, June's 5.125 percent. This may offer a memorable signpost for what could prove to be a cresting in interest rates. The bond market held firm following the results. Tomorrow the Treasury will auction $14 billion in 5-year notes. 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.