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Needle Still Points South

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Yields Bounce as Equities Make New Monthly Highs

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Heading North

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Bull Rally Accelerates

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Economists Survey Raises 2021 CPI Forecast To 4.9%

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J.P.Morgan note that Tuesday will see the Treasury auction "$24bn 20-Year bonds, unchanged in size from the last reopening auction in July. 20-Year yields have declined approximately 5bp since the last auction in August. Turning to relative value, the 20-Year sector has appeared cheap relative to 10s and 30s for most of the summer, but has outperformed in recent weeks, and now seems fairly valued. Lastly, liquidity conditions in the 20-Year sector have improved since earlier in the year: 20-Year market depth has risen materially, and is relatively in line with 30-Year depth for the first time since late-winter. Overall, lower yields and richer relative valuations should be an impediment for digesting tomorrow's auctions, but long-duration supply has been consistently met with robust end-user demand over the last two months. Moreover, the Fed has scheduled two purchase operations in the 10- to 22.5-Year sector over the next week, which should make it easy to clean up any excess inventory in the sector in coming days. Accordingly, despite these potential headwinds, with positions still somewhat short amid rising risk aversion, we think tomorrow's supply should be digested with relative ease."