U.S. Treasury Demand Dynamics: Non-Competitive Bid Trends in 3-Year Notes and Market Implications

The U.S. Treasury market remains a cornerstone of global financial stability, with demand dynamics shaped by shifting investor behavior and evolving liquidity conditions. Recent trends in non-competitive bids for 3-year Treasury notes-where investors accept securities at the final auction price-offer a window into broader market pressures and strategic shifts. As the Federal Reserve and policymakers navigate a complex macroeconomic landscape, understanding these trends is critical for investors seeking to balance risk and return.

Non-Competitive Bids: A Barometer of Participation

For the November 17, 2025, auction of $58 billion in 3-year Treasury notes, non-competitive bids totaled $156.624 million, representing a modest but consistent level of participation, according to a Reuters report. This figure, while small relative to the overall offering, underscores the appeal of Treasuries as a low-risk asset, particularly for retail investors and institutional players seeking guaranteed access. Notably, the Federal Reserve's System Open Market Account (SOMA) tendered an additional $9.033 billion, highlighting the central bank's role in stabilizing demand, according to the Reuters report.

The persistence of non-competitive bids, even in a high-issuance environment, suggests that investors view Treasuries as a reliable store of value. However, this demand is not immune to broader market forces. Historical data from 2023 to 2025 reveals a pattern of volatility, with liquidity strains emerging during periods of policy uncertainty and geopolitical risk.

Liquidity Strains and the April 2025 Volatility Episode

The most striking example of liquidity stress emerged in early April 2025, when unexpected tariff announcements triggered a sharp sell-off in longer-term Treasury securities, according to a New York Fed speech. Bid-ask spreads for off-the-run nominal Treasuries and TIPS nearly doubled, while market depth for on-the-run securities plummeted to a quarter of recent levels, according to the speech. This deterioration was exacerbated by the unwinding of leveraged positions, such as the swap spread trade, which amplified selling pressures, the speech noted.

Despite these challenges, the Treasury repo market remained resilient, with stable repo rates and ample reserves preventing a full-scale liquidity crisis, the speech said. The Federal Reserve's Standing Repo Facility (SRF) and robust rate-control mechanisms played a pivotal role in maintaining orderly conditions, the speech said. This episode underscores the importance of central bank interventions in mitigating systemic risks during periods of stress.

Investor Behavior and the Resilience of Treasury Demand

Investor behavior has also evolved in response to shifting market dynamics. The April 2025 volatility prompted a reevaluation of Treasury securities' status as a global safe-haven asset. For instance, the spread between synthetic Treasuries constructed from German bunds and actual U.S. securities widened, signaling a loss of confidence in the U.S. asset's unique risk-free appeal, according to a Brookings analysis.

Meanwhile, foreign demand for Treasuries faced headwinds during the late 2025 government shutdown, which created uncertainty around issuance and liquidity, the Brookings analysis noted. However, the Senate's passage of a funding bill to reopen the government stabilized yields, with the 10-year Treasury note settling at 4.111% and the 30-year bond at 4.71%, the Brookings analysis said. Analysts attribute this recovery to the anticipated release of $200 billion in Treasury general account funds, which eased borrowing cost concerns, the Brookings analysis said.

Strategic Implications for Investors

For investors, the interplay between non-competitive bid trends and liquidity conditions demands a nuanced approach. The resilience of the repo market and regulatory reforms-such as the SEC's central clearing rule for Treasuries-have bolstered system stability, according to the Brookings analysis. However, the April 2025 episode highlights the risks of overreliance on Treasuries as a liquidity buffer.

Strategically, investors should consider diversifying safe-haven allocations while monitoring policy developments. The unwinding of leveraged trades, such as the basis trade, remains a potential risk if repo rates spike unexpectedly, according to the New York Fed speech. Additionally, the Federal Reserve's continued use of tools like the SRF will likely shape near-term liquidity conditions, offering both opportunities and challenges for market participants.

Conclusion

Non-competitive bid trends in U.S. 3-year Treasury notes reflect a delicate balance between demand for safety and the pressures of a volatile macroeconomic environment. While the Federal Reserve and regulatory reforms have strengthened market resilience, investors must remain vigilant in navigating liquidity risks and policy uncertainties. As the Treasury market evolves, a proactive, data-driven approach will be essential for capitalizing on opportunities while mitigating downside exposure.