The Treasury has successfully auctioned $40 billion 3-year notes. The high yield was 1.377%, which was 1.6 basis points lower than the 1pm "When Issued" yield.

The bid to cover ratio, a measure of auction demand, was 2.83 bids submitted for every one accepted by the Treasury. The 3 year note has seen an average bid to cover of 3.01 in the last 4 auctions

Issued date    Feb. 16, 2010
Maturity date  Feb. 15, 2013
CUSIP number   912828MN7

YIELDS
High        1.377 pct
Median      1.307 pct
Low         1.200 pct

PRICE/ACCEPTANCES
Price              99.994122
Accepted at high   26.75 pct
Bid-to-cover ratio 2.83

AMOUNTS TENDERED AND ACCEPTED (dollars)
Total accepted                 40,000,014,800
Total public bids tendered    113,215,514,800
Competitive bids accepted      39,793,300,000
Noncompetitive bids accepted      156,714,800
Fed add-ons                     4,491,922,600

Primary Dealer Tendered        76,918,000,000
Primary Dealer Accepted        15,416,500,000

Direct Bidder Tendered         12,393,000,000
Direct Bidder Accepted          4,009,000,000

Indirect Bidder Tendered       23,697,800,000
Indirect Bidder Accepted       20,367,800,000

Overall...not a great auction.

Immediately following the auction, MBS and Tsy's moved to their weakest levels of the day, increasing reprice risk.  For now, both have latched on to support--MBS at 101-03+ and Tsys at 3.625.  

In the wake of treasury auctions, volatility can be quite high, and it's too soon to know if this support will continue to hold or if the situation deteriorates.  Though the level resilience so far would seem to suggest limited additional losses ahead of the important 10yr Auction tomorrow, the day remains uncertain.  Assume risk of reprices for the worse remain unless you hear otherwise from us.