2014 Economic Calendar
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2-Yr FRN Note Auction  
Released On 1/29/2014 11:30:00 AM For 1/29/2014 11:30:00 AM
Auction Results
Total Amount$15 B 
Bid/Cover5.67 
Discount Margin0.045 %

Highlights
Results are very solid for the Treasury's inaugural 2-year floating rate note auction. Coverage came in at 5.67 with the discount margin at 0.045 percent which, in a sign of strength, is below expectations for 0.054 percent. Dealers were very active bidders, taking down 53 percent of the $15 billion offering. The Treasury market is steady, showing little initial reaction to today's results.

Definition
An FRN (floating rate note) is a security that has an interest payment that can change over time. As interest rates rise, the security's interest payments will increase. Similarly, as interest rates fall, the security's interest payments will decrease. Yields on 2-year Treasury FRNs are reset each week to reflect the most recent weekly 3-month (13-week) Treasury bill auction high discount rate. But in addition to the weekly reset 3-month high discount rate, FRN yields include a discount margin (which in the first issue becomes the “spread” that not unlike a coupon becomes fixed to the FRN and is factored in for all subsequent discount margin rates) paid on top of the 3-month high discount rate. FRNs are sold at regularly scheduled public auctions. The competitive bids at these auctions determine the high discount margin for the FRN issue in addition to the 13-week floating high rate. A group of securities dealers, known as primary dealers, are authorized and obligated to submit competitive tenders at Treasury auctions. Dealers can hold the FRNs, resell them to their clients or trade them with other securities firms. Typically, the New York Fed approves about 20 securities firms to be primary dealers but that number dropped sharply during the 2008 financial crisis as some were merged into other firms or went bankrupt. The Fed has been rebuilding that number regularly and the latest list can be found here. Floating rate notes offer investors a chance to gain yield when interest rates rise and offer investors a low risk, high quality alternative to Treasury bills and their associated rollover costs. Original issue 2-year FRN auctions are usually announced in the second half of January, April, July and October, while reopening auctions are announced in the second half of each of the remaining months of the year. 2-year FRN auctions are always held in the last week of each month. Original issue FRNs are issued on the last day of the month, unless it is a non-business day, in which case they are issued (settled) on the first business day of the following month. The reopenings are issued on the last Friday of the month.  Why Investors Care
 
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Data Source: Haver Analytics
 

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