uploads/// Year Treasury Note Issuance versus Bid Cover Ratio

2-Year T-Notes’ High Yield and Coupon Rose


Nov. 30 2015, Updated 8:07 a.m. ET

Two-year T-notes

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.

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Key takeaways

  • 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.

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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).

Yield Analysis

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.

Investment impact

Mutual funds like the MassMutual Select Strategic Bond Fund – Class A (MSBAX) and the PIMCO GNMA Fund – Class A (PAGNX) provide exposure to T-notes. MSBAX rose by 0.2% while PAGNX rose by 0.04% week-over-week.


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