J.P.Morgan: 20-Year Supply Should Be Digested With Relative Ease

J.P.Morgan note that Wednesday will see the Treasury auction "$23bn new 20-Year bonds, $4bn smaller in size than the last new issue auction in August. 20-Year yields have declined 4bp since the October auction, but have also risen by 20bp from their local lows early last week. Turning to relative value, the 20-Year sector has outperformed since the November refunding announcement, when Treasury announced its large cuts, and the sector now appears fairly valued along the curve. Despite this outperformance, liquidity conditions in the sector have deteriorated over the last couple of weeks, even more so than in the 30-Year space: relative depth to 30-Years remains somewhat challenged. Certainly, knowing that both of last week's long-duration auctions were met with reduced end-user demand could present a challenge for tomorrow, but with yields significantly higher vs. their recent lows and the auction size being reduced, we think tomorrow's supply should be digested with relative ease."