Whether due to the broader risk-on move, or as a result of a surge in inflation fears in the aftermath of Hurricanes Irmas and Harvey, today's auction of $24 billion in 3Y paper was arguably the ugliest yet in 2017.

Printing at a high yield of 1.4330%, while this was the lowest yield since February, it was also a 0.6 bps tail to the 1.427% When Issued. The internals were even uglier, with the Bid to Cover tumbling from 3.13 to 2.70, and below the 6 month average of 2.85. Just as notable was the plunge in the Indirect award, which slumped from 64.1% in August to just 46.2% in August, the lowest since December 2016. And while Directs were largely unchanged from last month, at 10.4%, above the 8.7% 6M average, the Dealer award soared from 25.8% to 43.4%, nearly eclipsing the Inidrect take down, well above the 6 month average of 35.6%, and the highest since December 2016.

Overall, an unexpectedly ugly auction in light of last week's plunge in bond yields, although perhaps not all that surprising in light of the broad elimination, if only for the time being, of both geopolitical and climate-linked risk. And now, we look forward to the upcoming 10Y auction which may be just as ugly, if not worse should today's risk on euphoria persist, despite 10Y paper still trading quite special in repo as of this morning.