J.P.Morgan Believe 30-Year Supply Requires Further Concession

J.P.Morgan note that Thursday will see the Treasury “auction $22bn reopened 30-Year bonds, $2bn smaller than the last reopening auction in October. 30-Year yields have declined 6bp since the November auction, and the long end appears rich along the curve: the 10s/30s curve appears 20bp too flat after adjusting for U.S. and DM monetary policy expectations, DB pension funded ratio and the pace of Fed duration purchases. Separately, we think liquidity dynamics could make this process more challenging as well. There is a distinct seasonality where Treasury market depth tends to decline around year-end. The seasonal decline already begun this year, but the starting point is much lower, as depth has been on a declining trend for the past week, and is already 30% lower than average levels observed over the past 5 years. Overall, though yields have risen off their lows, 30-Year yields remain near their lowest levels of the year and the curve appears significantly flat after controlling for its drivers and against the backdrop of impaired liquidity. We think a further concession is necessary to absorb tomorrow’s supply easily.”