Detailed Report

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 06/27/2006

Yield Awarded

5.239 %

Highlights
Demand for the monthly 2-year Treasury note auction proved flat, no surprise given uncertainty over how high the Federal Reserve will raise interest rates and the apparent certainty of another 25-basis-point hike later this week.

Coverage was above average but at 2.28 was below 2.58 for last month's auction. Dealers also had to take a large share of the auction as non-dealers made up only 29.6 percent of accepted competitive bids, down from the long-term average of 38 percent.

High yield for the auction was 5.239 percent, a bit higher than the when-issued note at the 1:00 p.m. ET bidding deadline. May's auction posted a high yield of 4.933 percent, with the 30-basis-point difference reflecting a month of high inflation readings and accompanying rate-hike expectations. The bond market showed little initial reaction to 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