They are considered to one of the safest investment because of their early period of maturity. They usually offer the lowest coupon rates as they are the safest form of investment.
There are usually two types of auctions based on the bidding amount and the channel for bidding of treasury notes :
Non Competitive Bidding
Non competitive Bidding - The bidding in which the investor has to accept any yield offered on the notes . It is done through an online medium.
Competitive Bidding – The yield on the notes is fixed by the investor. However not more than 35% of the bidding amount can be placed as a competitive bid. The bid has to be applied through a broker or a bank .
Demand Vs Yield of Treasury notes
When demand is high ie more investors are willing to buy the treasury securities are issued above their face value .However the interest and the face value to be paid back is fixed . The issue price for them is above par.
When the demand is low the notes are issue at a discount . However the interest to be paid is fixed and thereby the yield increases.
Any increase in the yield on treasury notes increases the interest rates on open market loans.