J.P.Morgan Flag Mixed Signals Ahead Of 10-Year Supply

J.P.Morgan note that Wednesday will see the Treasury “auction $36bn 10-Year notes, unchanged in size from the last reopening auction in December. The December 10-Year auction cleared at 1.518%, 0.6bp cheap to pre-auction levels. More granularly, end-user demand rose 1.8%-pts to 86.6%: the investment manager takedown rose 13.2%-pts to 59.8%, while foreign demand fell 11.8%-pts to 24.4%. 10-Year yields have risen 23bp since the December auction, but valuations still remain rich relative to fair value. Turning to relative value, the 10-Year sector appears slightly rich along the curve after adjusting for the level of yields and the shape of the curve. Despite the recent move in yields, we think a further concession is necessary to absorb tomorrow’s supply easily due to given rich outright and relative valuations, although we note that growing positions in duration shorts could make this easier to digest.”