3 yr note auction decent but real test comes Wed and Thurs

With a yield at the highest since Aug ’09 and a maturity tied to expectations of Fed monetary policy and the direction of the fed funds rate which seems stuck at zero for a while to come, the 3 yr note auction was decent. The yield was right in the middle of the 1.77-1.78% when issued level. The bid to cover was good at 3.10, down from 3.13 in March but above the 12 month average of 2.87. Both the level of direct and indirect bidders were in line with the previous two. Bottom line, while a focus, tomorrow’s 10 yr and Thursday’s 30 yr are much more relevant in gauging expectations of inflation, growth and supply as today’s short end is more anchored to the fed funds rate where a hike isn’t expected until November.

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