The Treasury's $58B 3-year note sale drew weak demand on Nov 9, with the lowest bid/cover since the August 2025 refunding auction. Two more refunding sales follow this week, and the 10-year auction is the next test.
The Treasury's $58B 3-year note sale stopped at 4.627%, a 0.5 bp tail, meaning it priced above where the notes traded just before the auction. Demand was lackluster even though the cheaper pricing was meant to attract buyers.
Bid/cover and indirect demand fall
The bid/cover ratio was 2.53, the lowest since the August 2025 refunding auction. Indirect participation came in at 55.5%, the lowest in fifteen months, while the direct takedown hit 35%, the highest ever.
Foreign and institutional bidders typically show up in the indirect bucket, so the drop there suggests thinner overseas and asset-manager demand. Dealers also took less than usual: their participation was 0.8σ below the one-year average despite the higher yield.
Falling yields and a stock rebound
The likely explanation is timing. Yields had fallen over the past six weeks or so, which made the notes relatively unattractive, and the U.S. 10-year yield is down 7.04% over one month, while the 3-year is down 6.31%.
Meanwhile, the equity bounce drove a re-flattening of the yield curve and pushed 3-year yields higher before the sale. The S&P 500 was at 7,545.23, up 2.28% at 2:33 PM EST. Last week's tech selloff had created a haven bid for Treasuries, and as stocks recover, that bid fades.
Rate expectations and heavy supply
Front-end yields are sensitive to rate expectations. CME FedWatch put the odds of a quarter-point rate hike at the Dec. 8-9 meeting at roughly 77%. Employers added 165,000 jobs in October, against 59,000 expected.
The 3-year sale was the first of three refunding auctions: $42B of 10-year notes on Tuesday and $25B of 30-year bonds on Thursday follow, with the bond market closed Wednesday for Veterans Day. A U.S. 10-year yield above 4.9% after Tuesday's auction would show demand is asking a higher price.
One analysis noted that a single auction is an imperfect measure, and this one had mitigating factors such as the recent fall in yields.
Source: Investing.com
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