J.P.Morgan Believe That 7-Year Supply Will Require Further Concession

Ahead of Thursday’s supply J.P.Morgan note that “7-Year yields are now 47bp higher vs. the July auction, but remain 8bp below the 3.28% level where the June auction stopped.”

• “The WI roll opened at -0.675bp, slightly rich to our expectations and is now trading close to -1bp, outperforming versus the erosion of carry during the period.”
• “We find that historically over the last 5 years, the tails of 2- and 5-Year auctions have not been strong predictors of the outcome of subsequent 7-Year auctions so the weak results of this week's auctions do not necessarily imply a weak 7-Year auction.”
• “However, the broader theme of weak risk appetite ahead of this week’s Jackson Hole Symposium is likely to extend into tomorrow’s session. We also note that 7-Year yields appear appropriately priced on the curve after adjusting for the level of yields and the shape of the curve.”
• “Thus, we think tomorrow’s auction will require some further concession as valuations on the curve do not appear particularly attractive and risk appetite is likely to remain low.”