The Treasury paid its highest borrowing cost for three-year notes in two decades on Tuesday. The $58 billion sale stopped at a high yield of 4.932 percent, up from 4.475 percent last month, just 0.2 basis points through the when-issued yield of 4.934 percent. The bid-to-cover ratio fell to 2.62x from 2.72x, below the six-auction average.
The internals tell the story. Indirect bidders, the category that includes foreign investors, took 57.6 percent of the offer, down from a 12-month average near 63 percent and the lowest since February. Direct bidders stepped into the gap with 31.7 percent, near a record, leaving primary dealers with 10.7 percent, below their recent average of 12.6 percent. Even with the highest 3-year borrowing cost in two decades, foreign buyers are not showing up in size.
The calendar keeps the pressure on: the Treasury auctions $39 billion of 10-year notes Wednesday and $22 billion of 30-year bonds Thursday. The 10-year yield sat at 5.27 percent Wednesday morning after retreating 4.2bp Tuesday as October Fed-hike odds collapsed to 22 percent from 51 percent a week earlier.