The US Department of the Treasury holds monthly auctions for the two-year Treasury notes, or T-notes. The yield on the two-year T-notes is related to movements in the federal funds rate. Therefore, these auctions attract a lot of attention from stock and bond market participants.
- The auction was on November 23.
- The auction size was $26 billion—the amount remained the same since the January 2015 auction.
- The issue’s coupon rate was 0.88%—so far, the highest in 2015.
- The high yield rose for the November 23 auction. It recorded the highest level, so far, in 2015 at 0.95%—compared to 0.82% in the previous auction.
Overall demand analysis
The bid-to-cover ratio is an important indicator of the overall demand. It’s the total value of bids received divided by the value of securities on offer. A higher ratio implies higher demand and vice versa.
The demand for the two-year T-notes was higher at the November 23 auction. The bid-to-cover ratio rose by 4.7% to 3.2x at the November 23 auction. So far, in 2015 the ratio averaged 3.3x. It’s higher than 3.4x—the average for the auctions held in 2014.
Market demand analysis
The market demand at the auction rose from the previous auction. It came in at 64.5% of the competitive bids—compared to 51.1% at the November 4, 2015, auction.
Indirect bidders accounted for 45.7% of the bids—up from 40.1% in the previous auction. Indirect bids include foreign central banks. On the other hand, the percentage of direct bids rose to 19.0% at the November 23 auction from 11.0% at the November 4 auction. Direct bidders include money managers like Wells Fargo (WFC) and Invesco (IVZ).
Due to a rise in the market demand, the primary dealer allotments were lower at 35.3% of the competitive accepted bids—compared to 48.9% at the previous auction. Primary dealers include companies like JPMorgan Chase (JPM) and Morgan Stanley (MS).
The yield on the two-year T-notes rose by one basis point in the secondary market. It ended at 0.94% on November 23—compared to 0.93% on November 20.