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

J.P.Morgan note that Wednesday will see the Treasury "auction $61bn 5-Year notes, unchanged in size from last month. Since the April auction, 5-Year yields have declined 8bp and are trading near the low end of the range they have held for the last 2 months, though the sector appears fairly valued along the curve after adjusting for the level of rates and the shape of the curve. The WI 5-Year roll opened at +2.25bp, in line with our fair value estimate, and is now trading at +1.875bp, in line with the erosion of carry. From a liquidity perspective, 5-Year market depth still appears impaired relative to its 1-Year average, while most other tenors have retraced to above-average levels. Overall, with yields at their lowest levels in two months and liquidity still impaired in the 5-Year sector, we think tomorrow's auction will likely require above average end-user demand in order to be digested smoothly."