Econoday Economic Report: 10-Yr Note Auction July 11, 2012

2012 Economic Calendar

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10-Yr Note Auction

Released On 7/11/2012 1:00:00 PM For 7/11/2012 1:00:00 PM

Auction Results
Bid/Cover	3.61
Coupon Rate	1.750%
Total Amount	$21 B
Yield Awarded	1.459%

Highlights
Results are extremely strong for the monthly 10-year note auction where coverage of 3.61 is the second strongest on record. Non-dealers aggressively bid for this issue with the group awarded 45 percent of the $21 billion offering. In a major positive, the stop-out rate of 1.459 percent is more than 4 basis points below the 1:00 bid. Today's results will provide strong momentum for tomorrow's $13 billion auction of 30-year Treasury bonds. Demand for Treasuries is on the rise following today's results.

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. 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 recent 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: http://www.newyorkfed.org/markets/pridealers_current.html 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

Data Source: Haver Analytics

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