The U.S. Treasury sold $58 billion in 3-year notes at a high yield of 3.485%. This yield was a bit lower than the market index (WI) level of 3.492% during the auction. The auction had a negative tail of -0.7 basis points, while the six-month average was +0.7 basis points. The bid-to-cover ratio was 2.73, exceeding the six-month average of 2.55.

Dealer And Bidder Participation

Dealer participation was at 8.373%, which is lower than the six-month average of 15.9%. Direct bidders made up 17.4% of the total, while the six-month average was 21.9%. Indirect bidders were 74.24%, surpassing the six-month average of 62.1%. This shows reduced domestic demand but increased international interest, leading to strong overall demand for the notes. The 3-year note auction on September 9th, 2025, demonstrated very strong demand, indicating the market feels comfortable buying U.S. debt at these levels. The yield of 3.485% was lower than expected, suggesting we might see some downward pressure on rates soon. This indicates that major investors, especially abroad, find value in these notes. Given this information, it might be wise to consider trades that benefit from steady or slightly dropping interest rates. Buying futures contracts on 2-year or 5-year Treasury notes could be a straightforward way to take advantage of this trend. The August 2025 inflation report showed a mild CPI of 2.8%, supporting the expectation that the Federal Reserve will likely hold interest rates steady for the remainder of the year.

Impact On Currency And Stock Market

One key takeaway is the high 74.2% participation from indirect bidders, indicating a strong shift toward the U.S. dollar. This response may be linked to recent economic data from Europe, where the manufacturing PMI has now contracted for four months, raising speculation about a possible ECB rate cut. We should consider increasing our long positions in the U.S. dollar, especially against the euro. The stability in the bond market eases a significant challenge for stocks, particularly for technology and growth sectors that are sensitive to interest rates. It could be a good time to sell out-of-the-money put options on the Nasdaq 100 or S&P 500 indexes, allowing us to earn premiums on the belief that this robust auction supports the market. The implied volatility for these equity indexes has recently peaked at a three-month high of 19%, making the premiums appealing. We noticed a similar situation in late 2023 when strong demand for Treasury auctions indicated a peak in interest rates after an extended period of increases. This was followed by a notable rally in both bonds and stocks until the year’s end. Although the current circumstances are different, that historical trend may be worth considering for the weeks ahead. Create your live VT Markets account and start trading now.

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