Reprices for the Worse Possible After Weak Treasury Auction

Treasury just auctioned $32 billion 3-year notes.

The bid to cover ratio was a below average 3.01 bids submitted for every 1 accepted by Treasury. Dealers seemed to be extra aggressive in their bidding but that is not a good thing as it implies they were forced to buy because other investors were unwilling.

Indirect accounts were noticeably apathetic with a below average 27.6% award while Direct bidders were the least willing participate as noted by a $4bn decline in their total bids tendered and 7% smaller auction award. We have cited overseas inflationary threats as a potential cause for waining demand for shorter duration Treasury debt . Remember we saw this happen in the 2-year TSY note auction on January 25th.

The auction high yield of tailed the 1pm "When Issued" yield ever so slightly but the pre-auction concession was already priced in.

Generally weak demand for this issue has made it easy for traders to begin preparing for tomorrow's 10 year Treasury note auction. Benchmark yields are moving higher and MBS prices are falling fast. 

Note the consolidation pattern followed by the release of stored energy aka continuation. 10s find support at our 3.70% target.

We set our reprice target at 100-20 in FNCL 4.5s. We are rapidly approaching reprice for the worse territory. BEWARE...