Improved piercing arrow

Several can be found lodged in and scattered around a corpse at the Sharpshooter duel site.

Sticking out of a target near the path.

17 are inside a barrel in a room that’s considered hostile territory on the lowest floor. Pick a very-hard lock on the door to get inside.

3 in a body in an underground tunnel beneath Burnt Mezholes. You can find the entrance next to the large burned down building east of the map marker.

Credit to GG user Storm Cell for finding the tunne!