Now that the market is aggressively pricing in the coming Fed pivot, yields on the short-end are tumbling, and nowhere was that more evident than in today’s 3Y TSY auction, which saw the high yield on $40 billion in paper tumble from last month’s 4.605% to just 4.093%, the lowest since September and also a 0.3bps stop through the 4.096% When Issued, the 6th stop through in the past 9 auctions.
The bid to cover was 2.55, down from 2.57 in November, but above the 2.50 six-auction average. The BTC on the 3Y auction has been attached to the 2.50 level for the past 4 years.
The internals were solid, with Indirects taking down 61.7%, down from 62.2% last month but well above the recent average of 57.5. And with Directs awarded 20.4%, up from 17.0% in November, it meant that Dealers were awarded just 17.9%, down from last month’s 20.78% and the lowest on record.
Overall, a solid 3Y auction even if it took place as yields were pushing to session highs, and one which set the stage for today’s second auction when the Treasury sells 10Y paper at 1pm.