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 11/28/2006

Yield Awarded

4.692 %

Highlights
Demand was exceptionally strong for the month's 2-year Treasury note offering, strength that reflects the run of softening economic data that have eased the risk of new Federal Reserve rate hikes. The bid-to-cover was 3.02, the strongest reading in at least five years. The auction was awarded at a high rate of 4.692 percent, about 2 basis points below late expectations.

Demand from non-dealers was exceptionally strong as the group made up 56 percent of bids, the strongest reading in two years and especially underscoring the strength of demand.

Today's ongoing comments from Ben Bernanke, who is stressing the risk of inflation, evidently did little to stem demand for the auction. The bond market, perhaps still wary of Bernanke, didn't show any immediate reaction, but a late rally after Bernanke's speech is over is a possibility.

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