Weak 3 Year Auction Tails Despite Highest Yield Since April 2010

In a somewhat surprising auction, despite trading special in repo this morning at -0.50%, traditionally an indicator of a squeeze into the auction, today’s sale of $24 billion in 3 Year paper tailed modestly, printing at 1.63%, 0.6bps wide of the When Issued of 1.624% at 1pm.The yield was the highest going all the way back to April 2010, and certainly higher than the 1.427% in February or the 1.229% six prior auction average.

The internals were likewise less than impressive, with the Bid to Cover dropping from February’s 2.782 to 2.740, under the 6 month average of 2.8. Additionally, indirects stepped from today’s auction, with the Indirect takedown declining from 57.2 to 49.4, if in line with the 6MMA of 50.66%. Direct bidders took down 8.4% leaving Dealers 42.2. Total bids of $65.8 billion for $24.0b in notes sold vs six previous auction average of $68.7 billion in bids for average of $25.6b in notes sold.

With the auction coming in rather light of expectations, there has been a modest bid for both the USDJPY, and correspondingly risk assets, as every development that is adverse for the Treasury complex is now immediately seen as positive for stocks.


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