Ahead of today's 3Y auction, the first coupon auction of the year, much of the curve was trading normal in repo, with the only notable pressure as expected on the 3-year, which was trading special at -0.50% for On The Run issues, suggesting there could be a modest upside surprise in today's auction.
Which is why it was not a surprise that with courtesy of the sizable short overhang coming into 1pm, today's sale of $24 billion in 3Y paper printed stronger than expected, coming in at a high yield of 1.472%, stopping through the When Issued by 0.6 bps, and 2 bps higher than the December 3Y auction of 1.452%.
The internals came in strong than expected as well, with the Bid to Cover printing at 2.968, a big jump from last month's 2.653, and the highest since December 2015. Indirect Bidders received 54.6% of the takedown, the above last month's low 42.6%, and the highest since September 2016; Directs were left holding 6.6% which meant 38.8% went to Dealers, the lowest since October.
Overall, an uneventful auction ahead of tomorrow's 10Y which will likely be watched much closer.