Treasury 3-year auction preview:
Treasury 3-year auction preview: the wi remains 1.5 bps cheaper on the session, and the current 2.685% would be the highest stop since early 2007. That should compensate, at the margin, the likelihood for another 25 bp Fed tightening next month and risk of another in December. No one is really forecasting an aggressive policy stance anytime soon. The note is also relatively attractive on the curve given the narrow spreads to longer dated maturities, which are basically at their lowest levels in eleven years. Additionally, the note offers a 326 bp yield pick up to the 3-year German sovereign, which continues to trade in negative territory at -0.585%. Meanwhile, underlying concerns over tariffs and the negative implications for growth are supportive at the margin. On the other hand, the size of the auction was increased by $1 B to $33 B, and is up from $24 B in January, and that may keep the bid cover below average. There is a moderate short to be covered,though the JPMorgan Treasury client survey showed declines in both long and short positions. The June auction stopped at 2.664% and saw a 2.83 cover (2.91 average) and a 51.4% indirect bid (52.4% average). Direct bidders took 9.2% last month, while primary dealers accepted 39.4%.