J.P.Morgan: 7s Likely Require Some Concession

J.P.Morgan note that Thursday will see “Treasury auction $42bn 7-Year notes, $2bn smaller in size than last month. 7-Year yields are now 15bp below the levels of the April auction and the sector appears somewhat rich after adjusting for the level of rates and the shape of the curve. The WI roll opened at +0.625bp, slightly rich to our fair value estimate, and is now trading at 0bp, roughly in line with the erosion of carry. Despite recent strong end-user demand from the investment management community, valuations in the sector look somewhat rich on the curve and we think tomorrow’s auction should require some concession in order to be digested smoothly.”