The 3 yr note auction was on the soft side. The yield of 1.572% was a full basis point above the when issued. The bid to cover of 2.76 was just shy of the one year average of 2.79 and direct and indirect bidders took a total of 60% of the auction which is in line with the 12 month average.
Bottom line, as the short end is very sensitive to what the Fed will do, rate hike odds for 2 more continue to rise and likely explains the weak auction. June is basically a lock for a hike and odds for a 2nd one are now up to 70% by year end.
All of a sudden the 2 yr yield at 1.36% is just 2 bps from the highest level since June 2009. See chart.
Coincident with this, 3 month LIBOR continues its upward creep and that’s what companies care most about.
This behavior in bonds comes about an hour after the Atlanta Fed cut its GDPNow Q2 estimate to 3.6% from their initial estimate last week of 4.2%.