We see NTP for 127.3.0.1, .2, .3, .4 on our guests in INIT or STEP for all 4 blades. These guests are syncing successfully to external NTP servers and do not show Peer Time Out of Sync prompts.
From what I read in /etc/ntp.conf, these would only be used internally if the configured external NTP sources can't be reached.
Are the INIT and STEP statuses cause for concern or normal behavior?
INIT and STEP normally mean that the ntp service hasn't had a responce from a NTP server.
So this might be config, routing or firewalls etc.
the 127.3.0.X look like local loop back addresses, are you on a viprion? Not sure if there is a passthrough for this sort of stuff over the chassis.
Also what do you mean by guests?
Do you have local NTP Servers or are you trying to go external?