J.P.Morgan: 20-Year Supply Will Require Above-Average End-User Demand

J.P.Morgan note that Wednesday will see the Treasury auction "$27bn new 20-Year bonds, unchanged in size from the last new issue auction. Along the curve the 20-Year sector still appears modestly cheap after adjusting for the curve and yield levels. The WI roll opened around +2.625bp and is now trading at +2.375bp, roughly in line with the erosion of carry. Lastly, liquidity conditions have broadly deteriorated in recent weeks, particularly in the intermediate sector of the curve, and 20-Year market depth relative to the 30-Year sector is back near its lowest level since the beginning of July. Overall, though the 20-Year sector appears somewhat cheap along the curve, Treasury yields still appear too low versus fundamentals, and liquidity is impaired: thus we think tomorrow's auction will require above-average end-user demand to be digested smoothly."