Market Demand Up for 3-Year Treasury Notes at April Auction



Borrowing amount maintained

The Department of the U.S. Treasury holds monthly auctions of three-year Treasury notes. Yield on three-year Treasury notes is related to movements in the federal funds rate. As a result, these auctions attract a lot of attention from stock and bond (BND) (AGG) market participants.

Exchange-traded funds such as the iShares 1-3 Year Treasury Bond ETF (SHY) have holdings in three-year Treasury notes.

The borrowing quantum at the April auction was maintained from March’s auction at $24 billion.

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Key takeaways

  • The auction was held on April 7.
  • The auction size was set at $24 billion—the same as in March.
  • The issue’s coupon rate was set at 0.75%—25 basis points lower than at the March auction.
  • The high yield at April’s auction was lower at 0.865%—the lowest since March 2014—compared to 1.104% in March.

Demand analysis

The bid-to-cover ratio is an important demand indicator. It’s the total value of bids received divided by the value of securities on offer. A higher ratio implies higher demand and vice versa. Demand for three-year Treasury notes was lower in April, marking the second successive decline. The bid-to-cover ratio fell by 2.4% month-over-month to 3.25x at April’s auction. In 2015 to date, the ratio has averaged 3.31x, the same as the average at the auctions held in 2014.

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Market demand at the auction was higher month-over-month. It came in at 60.5% of competitive bids compared to 59.5% in March. Indirect bidders accounted for 49.4% of the bids. This was down from 51.4% last month. Indirect bids include foreign central banks. On the other hand, the percentage of direct bids rose to 11.1% from 8% month-over-month. Direct bidders include money managers such as Wells Fargo (WFC) and Invesco (IVZ).

Due to the rise in market demand, primary dealer allotments were lower at 39.5% of the competitive accepted bids, down from 40.5% a month ago. Primary dealers include companies such JPMorgan Chase  & Co. (JPM).


Demand for three-year notes was the highest among all notes and bonds auctions last week, though it wasn’t stellar. Yield on three-year Treasury notes moved higher in the secondary market after the auction. It ended April 7 at 0.85% compared to 0.83% on April 6.

Services activity in the US expanded  in March. We’ll look at that in the next article of our series.


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