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

Ahead of Wednesday's 20-Year auction J.P.Morgan note that the amount on offer is "$5bn larger than the debut new-issue auction in May. The July reopening cleared at 1.059%, 1.0bp cheap to pre-auction levels, while end-user demand inched up 0.7%-pt to 78.8%. The details show foreign sponsorship declined to just 5.3%, while the share of investment manager increased to 59.2%. Since the June auction, 20-year yields have risen 9bp, and the 20-year sector appears fairly valued along the curve after adjusting for the level of yields and the slope of the curve. Finally, the 20-year roll opened at 2.75bp wide relative to our estimates and has widened further since then, underperforming the erosion of carry. Overall, with yields at average levels, relative valuations fair, and the roll only modestly wide relative to fair value, it's not easy to discern the incremental buyer of the 20-year sector. Thus, it will require robust end-user demand for this supply to be digested smoothly."