J.P.Morgan: 20-Year Supply Will Be Digested Smoothly

Ahead of Wednesday’s 20-Year Tsy auction J.P.Morgan note that “since the October auction, 20-Year yields have declined 18bp, but are still near their cycle highs, while the sector looks fairly valued on the curve after adjusting for the rate level and curve slope.”

• “Since October, the primary dealer questionnaire on Treasury buybacks, which contributed heavily to the sector’s richening ahead of the last auction, has since been left unanswered at the recent TBAC meeting.”
• “Despite the fact that it is unlikely that we see such a facility come to fruition in the coming months, vestiges of this expectation have helped meaningfully improve curve dispersion in the off-the-run space.”
• “With market expectations squarely looking for a reduction in the pace of Fed tightening, sector valuations looking fair, and liquidity improvements in the off-the-run space, we think tomorrow’s auction will be digested smoothly.”