J.P.Morgan Believe 7s Will Need Some Concession To Be Absorbed Smoothly At Auction

Ahead of Thursday’s 7-Year Tsy auction J.P.Morgan note that “since the last auction, 7-Year yields have declined 41bp, and intermediate Treasuries have richened in excess of fundamental drivers.”

• “Along the curve, the 7-Year sector appears slightly rich versus the wings after adjusting for the level of yields and the shape of the curve. The WI roll opened at -0.75bp, in line with our forecast and has since cheapened to -0.38bp, roughly in line with the erosion of carry.”
• “So far in 2023, Treasury auctions have been exceedingly well received, with only tomorrow’s auction to go, so far in January, auctions have on average stopped 1.7bp through pre-auction levels. Historically, Treasury auctions tend to be well received in January, but certainly not to the extent seen so far this month.”
• “Overall, while the strength of year-to-date auction results poses a risk that the auction stops through, the richness of intermediate Treasuries suggests that the auction is likely to require some concession from current levels in order to be absorbed smoothly.”