Surprisingly Strong 3Y Auction Prices At Identical Yield To One Month Ago

With the US Treasury set to sell over $200BN in debt ahead of this week’s FOMC decision, where Powell will hike rats by another 25 bps, there were some residual fears that the auctions, either today’s 3Y, but especially tomorrow’s 10Y, could seem some unexpected softness. Once again, however, the skeptics were proven wrong when moments ago $32BN in 3Y paper was sold in a very strong auction.

While superficially the auction could have been better, tailing the When Issued 2.663% (identical to last month) by 0.1bps, and pricing at a high yield of 2.664%, what was more remarkable is that the 3Y paper stopped at exactly the same yield as May, when the yield was also 2.664%. What are the odds that one month later, the stop on the same exact auction would be identical? In any case, this was the highest 3Y paper yield going back to May 2007, when 3Y issuance was suspended until November 2008.

But while the pricing was somewhat weak, the internals were unexpectedly strong, with Indirects surging, awarded of 51.4% of the takedown, the highest since June 2014, and over 9% more than last month’s 42.4% Indirects, as well as the 41.3% 6 auction average. Directs were left with 9.2%, down from 12.3% in May, and the lowest since December, leaving Dealers with 39.4% of the final takedown, the lowest since November 2014.

But back to the big picture, which is that overall, this was a surprisingly robust auction, and even with a 25bps rate hike looming, investors found enough reasons to wave in the latest US bond sales.

The question is will they do the same in a little over an hour when this week’s 10Y auction will take place…

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