The Treasury has successfully auctioned $38 billion 3 year notes. This is $2 billion less than the previous six 3 yr note offerings and the lowest amount auctioned since September 2009.

The bid to cover ratio, a measure of auction demand, was 3.27 bids submitted for every one accepted by the Treasury. This is well above the ten auction average of 2.68 and the five auction average of 3.10 and the second highest 3yr note demand seen in the last nineteen auctions--- only the November 9, 2009 refunding saw greater demand. (3.33 btc)

Bidding stopped out at a high yield of 1.414%---which was below the 1pm "when issued" bid. Note: the high yield at last month's 3 year note auction was 1.776%. That is a 36 basis point decline in one month! This issue was expensive...and demand was still strong.

Primary Dealers, aka the street, took 32.7% of the auction.  This is below both the the ten and five auction average of 33.7% and 34.7% respectively.  This is a positive as we do not want the majority of auction supply ending up in the hands of market makers because they will need to get rid of excess supply...and they will not do it at cost. Dealers were not aggressive bidders though, only 14.9% of their bids were accepted.

Direct bidders, aka domestic fund managers like Vanguard and PIMCO, were awarded 16.5% of the issue. This is above the ten auction average of 7.4% and the five auction average of 10.9%. Direct bidders continue to be big supporters of 3 year note auctions.

Indirect buyers took home 50.7% of the auction. This is above the ten auction average of 49.9% but below the five auction average of 54.3%. Overall, indirect bidder demand continues to hold steady for the 3 year maturity, 73.1% of their bids were accepted by Treasury. This is a greater  "hit rate" than all but one of the last nineteen auctions.

Plain and Simple: Primary dealers went home with their lowest award since the November refunding. Direct bidders continue to play a pivotal role in providing stable auction demand. Indirect bidders proved they still have a healthy appetite for the relative safety of U.S. government guaranteed debt.  And it all happened without yields skyrocketing! Demand was strong for this round of debt supply.

While the auction went well, benchmark Treasury yields were already being pressured higher by the stock level ahead of auction results.

Overnight into this morning, equity traders tested the strength of yesterday's headline news reactive reversal in stock sentiment. 1140 support held and the S&P broke back over the all important 1150 level.  The S&P is currently +0.88% at 1169.93.

The next major test of sentiment is the 50 day moving average at 1172. A failure to break this resistance level is likely to result in a retest of 1150.

The 3.625% coupon bearing 10 year Treasury note is -0-02 at 100-20 yielding 3.548%. 10s have failed move back below 3.47% since the EU/IMF/Global Central Banks announced the details of their rescue package for EU members in debt distress. This level is important because it is the yield where the 10 year note began its H1 2010 trek into the 3.57 to 3.85% range on Dec. 21, 2009.

The "rate sheet influential" FN 4.5 MBS coupon is +0-05 at 101-14 yielding 4.337%. The secondary market current coupon, essentially the yield lenders use to determine mortgage rates minus servicing and gfees, is 1.1 bps lower at 4.307%. The current coupon is outperforming benchmarks today. The CC yield is +76.3bps over the 10 year TSY note yield and +71.4 basis points over the 10 year interest rate swap. This is close to the tightest levels of the day and the richest MBS valuations seen since Cinco de Mayo. (This is no a settlement day short squeeze, moreso a function of fast money accounts range trading "the basis").



All markets are in a "wait and see" period:  We are waiting for professional stock traders to make a move that sticks so we can see where interest rates are headed.