Stellar 3Y Auction Stops Through, With Highest Bid-to-Cover On Record

Amidst a declining stock market, the US Treasury auctioned $58 billion in 3-year bonds with strong demand. The auction yield of 3.440% was the lowest since August 2022 and below the When Issued rate, indicating heightened demand for safe assets. The bid-to-cover ratio increased to 2.662, and indirect bidders received a record high of 78.24% of the bonds, while direct bidders and dealers received smaller shares. The auction suggests that the market anticipates at least a 25 basis point interest rate cut by the Federal Reserve next week, with some expecting a 50 basis point cut. The strong auction reflects investor confidence in the Fed's commitment to easing monetary policy.