Tapering may not be tightening, as the Fed will keep repeating until someone actually believes it (the Fed may be right, however it's not what the Fed thinks or does, but the next most levered counterparty who is the risk factor, and whose potential selling is what is keeping everyone on their toes), but the just completed 3 Year auction just priced at a yield of 0.631%, precisely where it priced in August, the month before the last "consensus" taper announcement at the September FOMC, and above the 0.581% where the 3 Year was in June when the Taper Tantrum peaked. The short-end may not be panicking yet, but the enthusiasm for bonds is certainly not where it used to be, especially when one considers 3 Years priced in the mid-0.3% range from September 2011 until May 2013.
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That said, the auction showed stable demand, with the High Yield pricing through the 0.637% When Issued. Demands was even stabler when one looks at the Bid to Cover, which at 3.553 was the highest since the 3.587% in February, and continues to break the trend of declining BTCs seen over the past year, until the sharp jump in November.
Finally, the allocation was as follows: Primary Dealers: 49.6%, promptly to be flipped to the Fed, Indirects 38.4%, well above the 29.1% TTM average, and Directs taking down just 12.0%, the lowest since June, and far below the 18.9% average.
While overall the auction priced without any glitches or complications, should the Fed indeed proceed to Taper, the January 3 Year will hardly be a cool, calm and collected.