Treasury Auction Preview: US to sell USD 58bln of 3-year notes at 17:00GMT/13:00EDT

• High Yield: (prev. 3.518%, six-auction avg. 3.563%)
• Tail: (prev. -0.1bps, six-auction avg. -0.6bps)
• Bid-to-Cover: (prev. 2.62x, six-auction avg. 2.69x)
• Dealers: (prev. 10.9%, six-auction avg. 10.5%)
• Directs: (prev. 31.9%, six-auction avg. 25.3%)
• Indirects: (prev. 57.1%, six-auction avg. 64.3%)

The US will sell USD 58bln of 3-year notes at a time of heightened market volatility amid the ongoing US/Iran conflict. Yields across the curve, particularly the front end, have risen since the start of the war as oil prices surged in response to the escalation in the Middle East. The 3-year yield has risen from 3.381% to around 3.60% and is currently trading above the prior auction high yield of 3.518%.

There was a key development on Monday after US President Trump suggested the conflict could end soon, prompting a sharp reversal in crude prices. Brent crude fell from USD 119/bbl overnight on Monday to lows of USD 81/bbl, and now trades just above USD 90/bbl. The pullback in oil has helped ease some of the inflation concerns tied to the conflict, although the situation remains highly fluid and crude prices remain above pre-conflict levels.

The surge in oil had seen traders push back Fed rate cut expectations, although markets are now again pricing the first rate cut by September. Prior to Trump's comments, a cut had not been fully priced until October.

Alongside geopolitical tensions, participants are also increasingly wary of a slowing labour market following the weak February NFP report, which raised questions about the recent stabilisation in employment.

Meanwhile, corporate issuance has slowed as bond volatility has increased, with issuers likely waiting for more stable conditions before entering the market. The MOVE index rose from 64 at the end of February to a peak of 81.25 last week, the highest level since November 2025 and well above the YTD low of 55.65. Coincidentally, Amazon (AMZN) and Honeywell (HON) entered the market today, which could signal corporates beginning to return as optimism around the conflict improves following Trump's comments.

Given the elevated volatility backdrop, there is a risk of softer demand at today’s auction, particularly as front-end issuance tends to be more sensitive to shifts in inflation expectations and Fed policy pricing. A tail at this auction would be the first since August 2025. However, despite the volatility and uncertainty, the move higher in yields could attract demand into today's 3-year auction, particularly given the recent flattening of the yield curve. As such, the 3-year may offer relatively better value than the longer-dated auctions scheduled later this week.

This week also sees the release of CPI and PCE data, which could add further volatility. However, given the market's current focus on oil prices and geopolitical developments, the data may be viewed as somewhat stale as it will not yet reflect any inflationary impact from the conflict, but of course will still be important for bond traders.