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3-Year Note Auction
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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. 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. Four times a year, the Treasury announces the amount, date and time of the 3-year note auction (usually the first Wednesday of February, May, August and November). These notes are usually auctioned during the second week of these months (often on Tuesday) and are issued (settled) on the 15th of the month. If the 15th falls on a weekend or a holiday, they are issued on the next business day. Why Investors Care
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Highlights
The U.S. Treasury auctioned $21 billion of 3-year notes today with a coupon rate of 4.875 percent and a high yield of 4.995 percent. The coupon rate was up 37.5 basis points from the February auction of this maturity, while the high yield was 40 basis points higher than the previous auction. Demand for this issue was good considering that the FOMC is meeting tomorrow. The bid-to-cover ratio increased slightly from the February auction, and at 2.31 is slightly above average over its history. WI trading (trading before the auction) was running right at 4.995 percent.
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Trends
![[Chart]](chart.gif)
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When the 3-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 3-year note is lower than the fed funds rate, it suggests that investors are anticipating a rate cut -- or at least some stability in policy. This chart shows the average monthly 3-year note yield, not the latest auction results. |
Data Source: Haver Analytics
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