J.P.Morgan Expect 7-Year Supply To Be Digested Smoothly

J.P.Morgan note that Tuesday will see “Treasury auction $40bn 7-Year notes, $2bn smaller in size than last month. 7-Year yields are 49bp higher since the May auction. The WI roll opened at 0 and is now trading close to -0.15bp. On one hand, today’s weak 5-Year auction suggests risk appetite remains poor, amid high volatility and low liquidity. However, the notable cheapening of the 7-Year sector today, after adjusting for the level of rates and the shape of the curve, suggests some concession has already been priced in. Thus, despite today’s results, we think tomorrow’s auction will digested relatively smoothly, as the recent move to higher yields as well as attractive valuations along the curve should drive strong end-user demand.”