2017 Economic Calendar
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10-Yr Note Auction  
Released On 5/10/2017 1:00:00 PM For 5/10/2017 1:00:00 PM
Auction Results
Total Amount$23 B 
Coupon Rate2.375% 
Bid/Cover2.33 
Yield Awarded2.400% 

Highlights
Results are weak for the monthly 10-year note auction, where coverage at 2.33 was the lowest of the year and the bidding sloppy, pushing up the high yield to the awarded 2.400 percent, more than 1.5 basis points above the 1:00 bid. Demand from end investors was the weakest this year, with non-dealers taking down 66 percent of the $23 billion offering. The 2.400 percent awarded high yield was 6.8 basis points above last month's auction rate but still 16 basis points off the yield awarded at the March auction, where the high yield was the highest since July 2014. Just before the auction Boston Federal Reserve Bank President Eric Rosengren said in a speech that the Federal Reserve should begin consider gradually reducing its balance sheet after one more rate hike, adding to intensifying Fedspeak regarding reduction of the Fed's huge $4.5 trillion portfolio, $2.3 trillion of which is in Treasury notes and bonds. As the Treasury noted in its quarterly refunding announcement last week, if the gradual path taken by the Fed were to cease reinvesting the maturing Treasuries of its portfolio by purchasing new issuance of Treasuries, the Treasury would need to increase coupon auction sizes to fund the resulting increase in borrowing needs. The prospects of additional supply of such magnitude has turned-up the selling pressure on Treasuries of late.

Definition
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. The level of demand for an auction is measured by coverage which is the ratio of bids tendered to bids accepted. The higher this number, the stronger the demand. A group of securities dealers, known as primary dealers, are authorized and obligated to submit competitive tenders at Treasury auctions. Dealers can hold the bills, resell the bills 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 10-year note auction monthly. The 10-year notes are announced around the first week of the month and then auctioned the following week. Generally, the 10-year notes are issued (settled) on the 15th 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
 
[Chart]

Data Source: Haver Analytics
 
[Chart]
Between 2000 and 2011, the spread between the 10-year note and the federal funds rate averaged 173 basis points. More recently, in 2009 this spread grew to 310 basis points on fears of excess supply from financing the jump in the federal deficit but slipped to 304 basis points in 2010 and to 268 basis points in 2011. Essentially, a stronger economy and some reversal of flight to safety pushed rates back up in early 2011. However, in mid- 2011, the economy slowed and sovereign debt worries returned. A hefty decline in equities also added to flight to safety at mid-year though stocks bounced back later in the year, reflecting partial reversal of flight to safety. This chart shows the average monthly 10-year note yield, not the latest auction results.
Data Source: Haver Analytics
 

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