The jump in yield from 0.347% to 0.456% may not sound like much, but that is what just happened following the pricing of the latest $32 billion in 3 Year paper [4], which came at the highest rate since October's 0.544%. And considering that anything under 3 years is virtually risk free courtesy of ZIRP, this move is actually far more pronounced than it appears on the surface. Also, that the auction closed with a 0.1 bps tail is hardly too notable, although it does show that gradually interest for short-term paper may be decreasing as the Fed may be forced to not only not do QE if inflation courtesy of all the other central banks persists, but have to shorten its ZIRP through 2014 forecast. Auction internals were broadly in line, with a 3.436 Bid to Cover coming in slightly above the LTM average of 3.356. Dealers took down 56.5% of the auction, with Indirects holding 34.6% and Directs left with 8.9%. So the questions begin: is this the auction that heralds concerns of imminent inflation through the bond market (sending the 10 Year lower), and is this ultimately the market negative event, because while stocks may be pushing higher on the rotation out of bonds, all this means is that there will be no more easing for a long time.
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