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 09/27/2006 Yield Awarded 4.660 % Highlights Demand was solid for the month's 2-year Treasury auction, awarded at 4.660 percent and right in line with expectations. The bid-to-cover, boosted by the smaller size $20 billion offering, was very strong at 2.77. Non-dealers showed strong interest, making up 37 percent of the bids vs. 23 percent in the August auction. Note the coupon is down 1/4 percent in the month to 4.625 percent, a reflection of the decline underway in Treasury yields. Bonds firmed in reaction to the results. Next up will be tomorrow's $14 billion 5-year Treasury auction. 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.