Ahead of the Fed announcement and press conference on Wednesday, the 3 yr note auction, very sensitive to rate expectations, was good. The yield was almost 1 bp below the when issued. The bid to cover of 3.0 was the best since December 2015 and above the previous one year average of 2.78. Also reflecting good demand was that direct and indirect bidders took 72% of the auction which is well above the 12 month average of 60%.
Bottom line, while there is no doubt we will get another rate hike this week, the market is 50/50 on whether we get one past this by year end. As for the September meeting which is when the next press conference gathering will take place after this week, rate hike odds are only at 36% which helps to explain the good demand today for 3 yr paper. The reason for this is over worries about growth. I mean, why else is the yield curve flattening as much as it has. We’ll see the 10 yr note auction at around 1pm est.