J.P.Morgan: 3-Year Supply May Tail

J.P.Morgan note that Tuesday will see the Treasury “auction $52bn of 3-Year notes, $2bn smaller than last month. The December auction cleared 0.2bp through pre-auction levels as the share of end-user demand declined 5.5%-pts to 70.2%, while the investment manager share of demand fell by 5.1%-pts to 45.7%. 3-Year yields have risen 20bp since the December auction and are at their highs for the cycle. The sector appears expensive along the curve after adjusting for the level of rates and the slope of the curve. Additionally, liquidity in the sector remains lower than in neighbouring 2- and 5-Year notes. The 3-Year roll opened at +4.0bp, and is trading at +3.7bp. Despite yields trading at their cycle highs and a smaller auction size than last month, we think tomorrow’s auction could tail given the expensiveness of valuations along the curve and the weaker liquidity of the sector.”