J.P.Morgan Believe 5s Require Further Concession To Facilitate Smooth Auction

Ahead of Wednesday’s 5-Year Tsy auction J.P.Morgan note that “5-Year yields have declined 36bp since the December auction. The WI roll opened at -2bp, somewhat rich to our fair value estimate, and continues to trade near that level.”

• “From a macro perspective, we think Treasuries have run ahead of fundamentals and appear rich relative to the market’s growth and inflation expectations as well as our medium-term growth forecast.”
• “Along the curve, the 5-Year sector looks rich on the fly after adjusting for the level of rates and the shape of the curve. Despite strong auction momentum into the new year, valuations look rich and the recent outperformance premature, and therefore we think the auction is likely to require a further concession from current levels.”