3Y Auction Stops Through Despite Yield Plunge To 16 Month Low

While yields have been tumbling in recent days amid unprecedented flight to safety following the collapse of the yen carry trade, today’s action has seen fast selling of the rates complex with 10Y yields rising to session highs ahead of today’s 3Y auction, the first sale of coupon paper this week, followed by 10Y and 30Y auctions tomorrow and Thursday. Yet despite the aggressive selloff which pushed yields by 10bps higher, demand for today’s sale of $58 billion in 3Y paper was stellar.

The auction priced with a high yield of 3.810%, a plunge from last month’s 4.399% and the lowest in 16 months: the last time it was this low was in May 2023 when it was 3.695%. It also stopped through the When Issued 3.812% by 0.2bps, the second consecutive stop through after sizable tails in both June and April.

The bid to cover was mediocre at 2.551, down from last month’s 2.667, and right around the six-auction average of 2.569.

The internals were also solid, with Indirects taking down 64.4%, up from 64.0% in July and the highest since May (if below the recent average of 65.0% due to that stellar March auction where Indirects took down 70.0%). And with Directs allotted 20.25%, Dealers were left holding 15.35%, above last month’s 14.78%, but below the recent average of 16.5%.

Overall, this was a solid if not spectacular auction, one where despite today’s jump in yields, demands was clearly present, if hardly spectacular. And even though the auction left little to be desired, the continued unwind of the recent flight to safety meant that yields rose to session highs despite the solid reception.