BA/ML analyst Ralph Axel said......>

US TSYS/RESEARCH: BA/ML analyst Ralph Axel said the Fed balance sheet "unwinding

is not exactly paint drying." He adds "at current auction sizes, long-dated

Treasury auctions already impact rates, curve and swap spreads. The main delta

for next year will be higher auction sizes due to the Fed's portfolio unwind,

which we think could amplify these effects."

- He said "other supply shocks such as deficit-financed tax cuts or new 20y or

50y bonds would further increase auction concessions, we think."

- He said "supply flows matter," and "US Treasury auctions are typically the

biggest single duration flows within the global fixed income mkts. 2y, 5y, and

7y auctions are held at the end of each month, and generate sales of about $42bn

in 10y equivalents, while 3y, 10y, and 30y auctions are held mid-month and

contribute about $60bn in 10y equivalents. Leading up to these auction days, the

rates market tends to price a concession." He examined the markets impact "from

10y and 30y nominal bond auctions as well as 30y TIPS auctions," using US Tsy

auctions data since 2009, and pointed out that US "rates tend to rise, curves

steepen, and swap spreads tighten as the auction date approaches."