The Treasury Department’s first sale of quarterly refunding week got a cool reception on Monday. The government sold $58 billion of three-year notes at a high yield of 4.627%, about half a basis point above where the securities were trading just before the 1 p.m. deadline, a sign that buyers wanted a concession to take the supply.
The bid-to-cover ratio, a measure of demand, came in at 2.53, the lowest since the August 2025 refunding auction. Indirect bidders, a category that includes foreign central banks and asset managers, took 55.5% of the notes, their smallest share in 15 months. Direct bidders stepped in for a record 35%, which kept primary dealers’ allotment below average.
Lower yields, less appetite
Traders tied the soft result in part to timing. Yields had fallen over the past six weeks, partly on a haven bid during last week’s slide in technology stocks, leaving three-year paper less attractive than it was in October. A rebound in stocks on Monday pushed short-dated yields up ahead of the sale. Stronger-than-expected October jobs data has also lifted odds of a Federal Reserve rate increase in December, keeping the front end of the curve volatile.
Bigger tests ahead
The refunding continues with $42 billion of 10-year notes on Tuesday and $25 billion of 30-year bonds on Thursday, after the bond market closes Wednesday for Veterans Day. The Treasury held coupon sizes steady at its $125 billion refunding but dropped language promising to keep them at least that size, a change analysts read as an opening for larger short- and intermediate-dated sales next year. It also plans up to $70 billion of buybacks this quarter.
