J.P.Morgan: 5-Year Supply Will Require Above-Average End-User Demand

J.P.Morgan note that the "Treasury will auction $51bn 5-year notes Wednesday, $2bn larger in size than last month and the largest auction on record. The July 5-year auction cleared at 0.288%, 0.7bp cheap to pre-auction levels, and end-user demand decreased 7.6%-pts m/m to 70.4%. Investment manager takedown decreased 1%-pt to 54.6% and foreign demand declined 5.9%-pts to 9.1%, the lowest level since August 2018. Since the July auction 5-year yields are roughly unchanged, and the sector appears fairly valued versus the wings after adjusting for the level of rates and the shape of the curve. The WI 5-year roll opened at -0.125bp, modestly rich to our estimates, and is still trading at that level. Overall with this $2bn increase in auction size, we think tomorrow's supply will require above-average end-user demand to be digested easily."