Treasury sold $58 billion of three-year notes on Tuesday, October 6, at a high yield of 4.932 percent, the highest of the ten monthly three-year auctions held since January. The notes carry a 4.875 percent coupon, so a $10,000 note pays $487.50 a year in interest and was priced slightly under face value to close the gap between 4.875 and 4.932. The yield was 0.458 point above the September 8 sale and 1.414 points above the February 10 sale. The notes are issued October 15 and mature October 15, 2029.
For anyone holding three-year notes or weighing them, the new yield sets what fresh money earns through October 2029. A buyer at the October 6 auction receives 4.875 percent interest on face value and, by holding to maturity, collects the small discount on top for a total return of 4.932 percent. Notes bought at the September 8 sale carry a 4.375 percent coupon and a 4.474 percent yield, which leaves their owners earning 0.458 point less than this month’s buyers.
The notes are issued on October 15, and the monthly three-year sale has now set a rate nearly half a point higher than September’s.
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Why a 4.875 percent note yields 4.932 percent
The two numbers measure different things. The coupon is the fixed interest rate printed on the note, and it never changes. The yield is what a buyer earns once the price paid is counted, and the price at the October 6 auction was $99.842840 per $100 of face value, so $10,000 of notes cost $9,984.28. That $15.72 discount, paid back at maturity, is what lifts the return above the coupon.
Treasury sets coupons in steps of an eighth of a point, rounded down from the auction yield, and the data shows it: 4.932 percent became a 4.875 percent coupon, and September’s 4.474 percent became 4.375 percent. Interest on a $10,000 note comes to $243.75 every six months. The accepted bids ran from a low yield of 4.800 percent to the high of 4.932 percent, and every winning bidder received the high yield, according to Treasury’s Fiscal Data auction results.
Ten auctions from January: seven rises in eight sales
The year’s three-year auctions trace the climb. The January 12 sale cleared at 3.609 percent, February 10 at 3.518 percent, March 10 at 3.579 percent, April 7 at 3.897 percent, May 11 at 3.965 percent and June 9 at 4.192 percent, the same data series shows. July 7 came in at 4.179 percent, the only dip since February, followed by 4.291 percent on August 11, 4.474 percent on September 8 and 4.932 percent on October 6.
The latest jump was the largest of the year. The 0.458-point rise from September compares with 0.183 point in September’s sale and 0.318 point in April’s, and it lifted the coupon half a point, from 4.375 percent to 4.875 percent. Since the February sale the yield has risen at seven of eight consecutive auctions, a run that took the three-year rate up by 1.414 points in eight months.
Demand held up. Bids came to 2.62 times the $58 billion offered, a touch below the 2.72 of September 8 and about level with the 2.63 average of the nine earlier sales this year. Treasury accepted $59.38 billion in all. Primary dealers took $6.12 billion, direct bidders $18.05 billion, indirect bidders, a group that includes foreign central banks and investment funds, $32.83 billion, and noncompetitive bidders $649 million.
What pushed three-year yields higher
The Federal Reserve’s own account of the period points to several causes. The minutes of the September 15-16 meeting say the manager of the Fed’s market operations reported nominal yields rising around 35 basis points across the two- to 10-year part of the curve, and that market commentary linked the move to geopolitical developments, uncertainty around Treasury’s buyback program and heavy private debt issuance tied to artificial intelligence, which added to higher term premiums. The committee had raised its policy rate a quarter point to a 3.75 to 4 percent range on September 16.
Treasury’s daily curve shows the three-year rate drifting after the sale rather than breaking away. It stood at 4.91 percent on October 1, 4.96 percent on October 2 and 4.97 percent on October 5 before easing to 4.88 percent on October 6 and 4.87 percent on October 7. A buyer at the auction accepted 4.932 percent, about 0.06 point more than the curve showed the next day.
Buying a three-year note at auction
Individuals can buy notes themselves rather than through a fund. TreasuryDirect, the Treasury’s retail site, says on its Treasury notes page that notes are sold for two, three, five, seven or 10 years, start at $100, pay a fixed rate of interest every six months, and that the rate is set at auction and does not change over the life of the note. Interest is subject to federal tax each year and is free of state and local taxes.
Bidding noncompetitively accepts whatever yield the auction sets, which on October 6 meant 4.932 percent, and the page puts the cap on a noncompetitive bid at $10 million. A competitive bid names a yield and is left out if that yield is above the auction’s high. Holders can keep a note to maturity or sell it earlier, and a sale before October 15, 2029 would be at the market price of the day, which can sit above or below the price paid.
Buyers at the October 6 auction locked in 4.932 percent for three years, a rate no earlier sale this year has matched. Whether the sale marks a peak or one more rung depends on the next three-year auction, which will be measured against the 4.932 percent set on October 6 and against a Fed whose minutes say most participants expect another rate increase by year end.
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This article was produced with AI assistance and reviewed by The Money Overview’s editorial team.
