Auction Preview: US to sell USD 69bln of 2-year notes at 17:00GMT/13:00EDT

• High Yield: (prev. 3.455%, six-auction avg. 3.516%)
• Tail: (prev. 0.1bps, six-auction avg. -0.2bps)
• Bid-to-Cover: (prev. 2.63x, six-auction avg. 2.62x)
• Dealers: (prev. 9.8%, six-auction avg. 10.7%)
• Directs: (prev. 34.3%, six-auction avg. 32.1%)
• Indirects: (prev. 55.9%, six-auction avg. 57.2%)

The 2-year yield surged in March in response to the US-Iran conflict, trading at 3.88% at the time of writing, up from the prior auction’s high yield of 3.455% and marking the highest level since August 2025, which saw a 1.5bps stop-through at the corresponding offering. The 2-year yield also trades above the six-auction average high yield of 3.516%.

While the backup in yields may support demand, it is worth noting that the front-end of the curve has been more volatile than the long-end amid the recent bear flattening driven by the spike in crude prices. Given the ongoing uncertainty around the conflict, the front-end remains highly sensitive to geopolitical developments, which could see some participants opt to remain on the sidelines at today’s auction. March’s 3-, 10- and 30-year auctions were mixed, with the 3-year the softest, while demand improved further out the curve.

The key development this week has been US President Trump stating that the US and Iran had held very good talks and that strikes on key Iranian energy and power facilities had been postponed for five days, suggesting a potential deal could be reached in the near-term (Trump has floated the possibility in the next few days). However, Iranian officials questioned these claims, contributing to heightened volatility at the start of the week. With the front-end particularly sensitive to such developments, uncertainty remains elevated, which could act as a hurdle.

Although there is a relative lack of major US economic data this week, which may help limit volatility, the MOVE index remains elevated. It is currently trading above 98, compared to around 78 at the time of the 10th March 3-year auction, and 67 at the time of the February 2-year auction. The MOVE index reached a peak of 109 on Monday following the latest geopolitical developments, marking the highest level since June 2025.

Meanwhile, private credit concerns continue to linger, with the latest updates from Ares (ARES) and Apollo (APO) limiting fund withdrawals. This may encourage a rotation into safer and more liquid assets such as government bonds.

Overall, the combination of a soft 3-year auction, elevated volatility, and heightened front-end sensitivity to geopolitical risks may point to softer demand at today’s auction. However, with yields at their highest level since August 2025, the sector may still attract demand from money market funds seeking to lock in higher yields, while private credit concerns could drive a rotation into safer and more liquid assets such as Treasuries.