J.P. Morgan: 7-Year Supply Will Require Above-Average End-User Demand

J.P. Morgan note that Thursday will see the Treasury sell "$53bn of 7-year notes, $3bn larger in size than last month. The September auction cleared at 0.462%, in line with pre-auction levels, despite a 5.2%-pts m/m decline in end-user demand to 79.5%. More granularly, the investment manager takedown rose to 53.8%, while foreign demand declined to 17.0%. Since the September auction, 7-year yields have risen by 7bp, and despite this week's rally, remain well above average levels held over recent months. The 7-year sector appears fairly valued versus the wings after adjusting for the level of rates and the shape of the curve. The WI 7-year roll opened at +0.875bp, in line with our fair value estimate, and is still trading at that level. Overall, we think tomorrow's upsized auction will require above-average end-user demand to be digested smoothly."