2016 Economic Calendar
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7-Yr Note Auction  
Released On 2/26/2016 11:30:00 AM For 2/26/2016 11:30:00 AM
Auction Results
Total Amount$28 B 
Coupon Rate1.500% 
Yield Awarded1.568% 

Bidding was sloppy in Friday’s monthly 7-year note auction, with the high yield awarded at 1.568 percent more than 2.5 basis points above the 11:30 market bid. Meager coverage of 2.25 compares unfavorably with January’s 2.63 and last year’s average of 2.45. Despite expected month-end buying from duration-lengthening fixed income index funds, non-dealers only took down 68 percent of the issue, which is 5 percent less than the previous 4 auctions, leaving dealers with a bulky 32 percent. The reduced size of the auction offering, which had been cut by $1 billion from the previously standard $29 billion, as planned in the Treasury’s quarterly refunding, did not seem to have any impact. The auction was held a day later than originally scheduled due to technical difficulties Thursday afternoon, when that auction was cancelled at the last moment. Thursday’s minor fiasco, which had dealers scrambling to cover shorts put on as hedges against anticipated purchases, may account for the poorly received auction. It winds up this week’s otherwise well-received $88 billion round of nominal coupon issuance.

Treasury notes are sold at regularly scheduled public auctions. The competitive bids at these auctions determine the interest rate paid on each Treasury note issue. A group of securities dealers, known as primary dealers, are authorized and obligated to submit competitive tenders at Treasury auctions. Dealers can hold the notes, resell the notes 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. The Treasury announces the amount, date and time of the 7-year note auction monthly. The 7-year notes are announced around the third week of the month (usually on Thursday) and then auctioned the following week. In all cases, the 7-year notes are issued (settled) on the last day of the month, unless it falls on a weekend or holiday, and then they are issued on the next business day. (Department of the Treasury)  Why Investors Care

Data Source: Haver Analytics
During periods of stability in monetary policy, it is not uncommon to see average yields on 7-year notes to run at least 200 basis points over the fed funds rate target. But the differential has swung in some years on changes and expectations of changes in Fed policy. In 2007 and early 2008, the 7-year note rate was below the fed funds target on tight monetary policy. In latter 2008 and through 2011, extremely loose monetary policy pushed the differential back up. This chart shows the high yield awarded at monthly 7-year note auctions since January 2012, including the latest auction results.
Data Source: Haver Analytics

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