On-the-run 3s are trading at 4.69% ahead of the 3-year note sale, which is down from a high of 4.73% earlier.
Here's BMO on the auction:
While a 10-year auction will always be the benchmark for evaluating primary market demand for Treasuries, today’s 3-year auction will be marginally more tradable than would otherwise be the case. Not solely because of the light data Monday nature of today’s session, but also from a higher level given the point in the cycle. 3s occupy a pivotal point on the yield curve as an evaluation of Fed sentiment, and especially during inflection points in the cycle, willingness to own the 3-year sector at current levels will be a function of several monetary policy currents. The uncertainty of another hike in 2023 is clearly something to consider in buying 3s, but with the debate shifting from hike likelihood to the timing of the first cut of the cycle, valuations in 3s will increasingly become a function of the what form the initial reduction in policy rates take.
This sale is likely to be the highest yield since 2007.
