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

J.P.Morgan note that Wednesday will see “Treasury auction $17bn new 20-Year bonds, $2bn smaller than the last new issue auction in February. 20-Year yields have risen approximately 30bp since the last auction in April and are trading near the highs of this cycle. The WI roll opened at -2.125bp, slightly rich relative to our fair value estimate, and is now trading at -1.75bp, roughly in line with the erosion of carry. In relative value terms, the 20-Year sector appears fairly valued along the curve after adjusting for the level of yields and the slope of the curve. Treasury market liquidity remains challenged, however, especially in the 20-Year sector. Nonetheless, given the recent backup in yields, we think tomorrow’s supply should be digested with relative ease.”