Following today's explosive 4 Week Bill auction which priced at the highest yield since October 2008, the subsequent $30 billion 3 Year auction was rather anticlimatic. While the WI had been rising modestly all day, the final high yield of 0.71% was through the When Issued 0.719%, which was also the lowest since August, following the pre-Taper fears blow out in short-term yields in September when it priced at 0.913%. Still, the Bid To Cover was hardly anything to write home about, which at 3.048 was the lowest since June and higher only than the 2.946 from June, going back all the way late 2010. The ongoing decline in Bids to Cover is very obvious in the chart below.
The internals indicated a modest increase in Indirect Bidders, which took down 34.4% of the auction, compared to the 28% TTM average, leaving 19.7% to the Directs, in line with the trailing twelve month average, and 45.8% to Dealers, below the 52.7% TTM average. Overall, the fear in the bond market continues to be confined to the ultra-short term bonds, where fears of a technical default in the next month is all focused on the next month, but for now is confined solely there.