The U.S. Treasury will auction off $58 billion of 3 year notes at the top of the hour. The auction results will compared to the 6 auction average for the major components. Below are the last values at the last 3 year note auction followed by the 6 auction average.

• High Yield: 3.579% (6-auction avg. 3.579%)
• Tail: 1.1 bps (6-auction avg. -0.3 bps)
• Bid-to-Cover: 2.55x (6-auction avg. 2.66x)
• Dealers: 19.5% (6-auction avg. 12.3%)
• Directs: 20.7% (6-auction avg. 25.8%)
• Indirects: 59.8% (6-auction avg. 61.9%)

What do each of these components represent

• Tail: The difference between the auction yield and the when-issued (WI) yield just before the auction
  → Positive tail: weaker demand (investors demanded a higher yield)
  → Negative tail (stop-through): strong demand
• Bid-to-Cover: Total bids divided by the amount sold
  → Higher ratio: stronger overall demand and competition
  → Lower ratio: softer demand
• Dealers (Primary Dealers): Banks obligated to bid and take down supply if others don’t
  → Higher dealer share: weaker demand from real investors (dealers had to absorb more)
  → Lower dealer share: healthier auction
• Directs: Domestic buyers placing bids directly (e.g., mutual funds, pensions, hedge funds)
  → Higher directs: solid domestic real-money demand
  → Lower directs: less domestic participation
• Indirects: Typically foreign buyers (central banks, sovereign funds, global investors)
  → Higher indirects: strong foreign demand (generally bullish for Treasuries)
  → Lower indirects: weaker global appetite

Bottom line:

• Strong auction: Stop-through/low tail + high bid-to-cover + low dealer take + strong directs/indirects
• Weak auction: Positive tail + low bid-to-cover + high dealer share + weak indirect demand**