Record-Breaking 3Y Auction Demand Amid Stock Market Downturn

Strong Demand for 3Y Paper

As the stock market continues to plummet, it's no surprise that investors are seeking safer options. This was evident when the US sold $58 billion in 3-year treasury notes, with demand reaching its highest point since the previous summer. The 3Y auction was priced at a high yield of 3.440%, a significant drop from last month's 3.81% and the lowest since August 2022. It also surpassed the 3.457% When Issued rate by 1.7 basis points, marking the largest increase since August 2023 and the fourth largest in history.

Impressive Auction Internals

The bid-to-cover ratio, a key indicator of demand, rose to 2.662 from 2.551, surpassing the recent average of 2.564. However, the most notable aspect of the auction was the internals. Indirect bidders were awarded 78.24% of the total, up from 64.4% last month, setting a new record. With limited availability for the remaining two groups, the distribution was almost equal: Direct bidders received 11.3% and Dealers were allocated just 10.4%, marking the second lowest allocation on record.

Market Expectations of Fed Rate Cut

Overall, the success of the 3Y auction suggests a market expectation for the Federal Reserve to cut rates by at least 25 basis points in the coming week, with some predicting a cut of 50 basis points.

Bottom Line

This record-breaking demand for 3Y paper in the midst of a stock market downturn is indicative of investors' desire for safer investment options. It also suggests a strong market expectation for a rate cut by the Federal Reserve in the near future. What are your thoughts on this situation? Do you agree with the market's expectations? Share your thoughts and this article with your friends. Don't forget to sign up for the Daily Briefing, available every day at 6pm.