Sale of $58B U.S. 3-Year Notes Somewhat Weak but Not Alarming — Evening Brief – 06.10.25 

There was measured concern heading into today’s $58 billion 3-year Treasury note auction—the first coupon issuance of the week—amid a backdrop of recent weakness in global sovereign debt markets and ahead of two key supply events: Wednesday’s $39 billion 10-year auction and Thursday’s $22 billion 30-year bond sale. Investors were closely watching whether demand would hold up, particularly given shifting interest rate expectations, persistently sticky inflation data, and signs of uneven global risk sentiment. 

In the end, while the auction came in mildly weak, the results were not troubling enough to suggest a broader deterioration in demand. Rather, it reflected a market that is cautious but functioning normally ahead of heavier, longer-duration supply. 

The 3-year notes priced at a high yield of 3.972%, a notable rise from May’s 3.824% and the highest since February’s 4.3%. The auction tailed the when-issued yield of 3.968% by 0.4 basis points, marking the seventh tail in the last nine 3-year auctions, and indicating only modest buyer hesitation at the margin. 

The bid-to-cover ratio—a key measure of overall demand—declined to 2.516, down from 2.556 in May and below the six-auction average of 2.617, signaling slightly diminished competitive bidding. While not alarming, it adds to the narrative of softer top-line metrics compared to recent auctions. 

Despite the mild softness in headline numbers, auction internals offered some reassurance. Indirect bidders—which typically include foreign central banks and international institutions—increased their participation to 66.8%, up from 62.4% in May and above the recent average of 66.2%. This uptick suggests that foreign demand for U.S. paper remains intact, even as yields move higher. 

Meanwhile, Direct bidders—typically smaller institutions and investment funds—fell to 18.0%, down from 23.7% last month but broadly in line with the average of 18.7%. Dealers were left with 15.2%, matching the six-auction average and indicating that the primary dealers were not unduly burdened with unsold supply. 

Taken together, today’s 3-year auction can be characterized as orderly but unremarkable. The market’s muted reaction post-auction reflects a consensus that the results, while on the softer side, were broadly anticipated. 

Still, investor focus will now shift toward this week’s more sensitive longer-duration auctions. The 10-year and 30-year offerings will serve as a clearer barometer of underlying demand at the longer end of the curve, where duration risk, inflation uncertainty, and monetary policy expectations weigh more heavily on buyer conviction. 

If those auctions struggle—particularly in the face of rising real yields and continued hawkish signals from the Federal Reserve—it could trigger renewed volatility in rates and broader risk markets.