With yields at their highest level since mid Nov up 40 bps in just a week and less sensitive to inflation due to its shorter maturity, the 3 year note auction was solid. The bid to cover of 2.82 was the highest since mid Nov ’08 and above the one year average of 2.49. Indirect bidders totaled 43.8%, a 4 auction high and above the one year average of 37.2%. Also, the yield was one bps below the when issued right before the results were released. In terms of demand and getting things done from the US Treasury perspective, this was a lay up, especially with the back up in yields over the past week but tomorrow and Thursday is the tough part with the 10 yr and 30 yr auctions and will be, for now, the ultimate sentiment indicator of the appetite for longer dated (thus most vulnerable to inflation expectations) bonds. Following his trip to China, Geithner (and the rest of us for that matter) has his fingers crossed that his sales trip was impactful.
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