Treasury auctioned $32bn 3s. The bid to cover ratio, a measure of auction demand, was 3.29 bids submitted for every one accepted by TSY.  That is good for the best btc ratio on record since November 2009!

Direct bidders were the buyers of note. They added an above-average $14.365bn in new 3s. This 15.4% award is a four-auction high for directs who also bid aggressively (hit rate at 34.2%. best since 41.8 in Dec2010). Dealers and indirects were otherwise average to slightly weak on the whole. Here is a recap...

MG and I were watching the chart below as the results flashed. It graphs the current "On the Run" 3-yr note vs. the "When Issued" yield, which as you can see landed on 1.004% at 1pm. The auction itself produced a high-yield of 1.00%, meaning all tenders at lower yields were accepted in full. It is no coincidence that 1.000% was the auction high-yield....it's been an inflection level/pivot over the last three days.

Market reaction...

MBS SET NEW INTRADAY LOWS : REPRICES FOR WORSE POSSIBLE

Loan pricing was mixed this AM. Some lenders owed gains from yesterday while others we flat on first release. With FNCL 4.5s -3/32 and 4.0s -6/32, reprices for the worse are possible from the lenders who withheld rebate yesterday afternoon. If your pricing was dinged this morning, you have a few more ticks to work with...but if the downtrend continues, you too are likely to see unfriendly recalls.

THE "PRICE LEADER" ALREADY WENT FOR THE WORSE. YOU KNOW FAMC IS NEXT....

Secondary Market CC: +1.4bps to 3.955%. Slightly tighter vs. 10yr TSY at +77.6bps. +71.2 vs.10yrSwap. Tighter there too. +207.9 over 5s/10s blend. Tighter across the board.

PS. dont forget it's roll day for FN and FG 30s