The 3 yr note auction was excellent. The yield of 1.52% was below the when issued by almost 1 bp. The bid to cover of 3.13 was well above the 12 month average of 2.81 and is the best since December 2015. Also of note, direct and indirect bidders took almost 75% of the auction vs the one year average of 61%, thus leaving the dealers with the smallest amount since at least 2003 that I have data on.
Bottom line, as this part of the curve is highly sensitive to expectations for Fed policy, if the markets could speak, they are saying the Fed is almost done with rate hikes. Odds for December are at 50% and I believe the determining factor of whether we will see that hike will be determined mostly by where the S&P 500 is after QT begins. Assuming no major change in economic growth, the S&P 500 will either sell themselves out of a December rate hike after QT or rally itself right into one if they handle QT well. If the Fed was just looking at the data in front of them, because they seem so focused on the labor market and the shrinkage in the supply of labor that is becoming more acute I think they hike again in December after QT in September.