J.P.Morgan: 30-Year Supply Should Be Digested Smoothly

J.P.Morgan note that Thursday will see Treasury “auction $23bn 30-Year bonds, $2bn smaller than the last new-issue auction in November. Since the January auction, 30-Year yields have risen 18bp and are near their highest levels since last June. Moreover, the Milliman Index shows the funded ratio of the 100 largest DB pension funds is now at 101.4%, rising 1.6ppts from December and exceeding 100% for the first time since August 2008. This should incentivize increased demand for long-end Treasuries. Lastly, despite the recent flattening, the 10s/30s curve now appears modestly too steep after adjusting for U.S. and DM monetary policy expectations, DB pension funded ratios, as well as the pace of Fed purchases. With yields steadily increasing since year-end, strong demand from the pension community, and attractive valuations, we think tomorrow’s supply should be digested smoothly.”