Auction Preview: US to sell USD 58bln of 3-year notes at 18:00BST/13:00EDT

Auction History: 

• High Yield: (prev. 3.579%, six-auction avg. 3.579%)
• Tail: (prev. 1.1bps, six-auction avg. -0.3bps)
• Bid-to-Cover: (prev. 2.55x, six-auction avg. 2.66x)
• Dealers: (prev. 19.5%, six-auction avg. 12.3%)
• Directs: (prev. 20.7%, six-auction avg. 25.8%)
• Indirects: (prev. 59.8%, six-auction avg. 61.9%)

Preview:

The 3-year auction comes amid elevated geopolitical risk, with US President Trump’s 20:00 EDT deadline on Iran likely to keep participants cautious and potentially on the sidelines.

The April offerings follow a weak set of March auctions, where demand struggled across maturities, particularly in the front-end. While demand improved further out the curve, the front-end remained under pressure as volatility tied to the conflict weighed on participation.

Although front-end yields have risen sharply since the onset of the conflict, this was not enough to support demand in prior auctions, as elevated volatility dominated. The MOVE index has moderated from March highs of 115 to around 82, but remains well above pre-conflict levels near 60 and broadly in line with levels seen at the time of the March 3-year offering.

The 3-year yield currently trades around 3.87%, above both the March high yield of 3.579% and the six-auction average of 3.579%. However, recent auctions suggest higher yields alone may not be sufficient to draw in demand if volatility persists, particularly with the elevated risk due to tonight's deadline.

Looking at the breakdown, March auctions saw relatively stable indirect demand (a proxy for foreign participation), while direct demand fell sharply, indicating real money accounts and money market funds stepped back amid heightened volatility and headline risk. A similar dynamic may be seen at this auction if volatility is still a concern.