Pension funds saw less interest at the 2-year Treasury note auction


Dec. 4 2020, Updated 10:53 a.m. ET

April’s two-year Treasury note auction

Last week’s Treasury auctions included $25 billion one-month (or four-week) T-bills auctioned on April 22, plus $25 billion three-month (or 13-week), and $23 billion six-month (or 26-week) T-bills auctioned on April 21.

Apart from T-bill auctions, last week also saw auctions for $32 billion two-year Treasury notes on April 22, $35 billion five-year Treasury notes on April 23, and $29 billion seven-year Treasury notes on April 24.

We already covered T-bill auctions in the previous parts of this series. We’ll cover last week’s auction for two-year Treasury notes in this part of the series.

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The bid-to-cover ratio for the two-year note increased to 3.35x for the April auction compared to 3.20x for the auction in March. However, dealers were awarded 58% of the auctioned notes compared to 37.5% in the March auction. This means direct bidders such as pension funds and insurers and indirect bidders such as foreign banks received a lower chunk of two-year Treasury notes during last week’s auction compared to the previous month. High yield dropped to 0.447% but remained higher than analyst expectations.

Investors seeking to invest in Treasury notes can invest in ETFs such as the iShares Barclays 1-3 Year Treasury Bond Fund (SHY), iShares Barclays 3–7 Year Treasury Bond Fund (IEI), and Vanguard Short-Term Government Bond ETF (VGSH). Investors looking at an intermediate-term investment horizon but willing to take higher risk can invest in corporate bond ETFs such as the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and iShares iBoxx $ High Yield Corporate Bond ETF (HYG).

To find out about the auction of five-year Treasury notes held on April 23, read on to the next part of this series.


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