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J.P.Morgan Flag Need For Above-Avg. End-User Demand At 10-Year Auction

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J.P.Morgan note that Wednesday will see Treasury “auction $35bn 10-Year notes, $1bn smaller than the last new-issue auction in May. Since the last auction, 10-Year yields have declined by 17bp, though they are 19bp above their local lows reached last week. At current levels, yields appear more than 30bp too low relative to fundamental drivers, and the sector is modestly rich versus the wings after adjusting for the level of rates and the shape of the curve. The WI roll opened at -1.0bp, somewhat richer than our estimates, and is trading at -0.625bp, underperforming the erosion of carry. Overall, with yields near the lower end of the range they have held over the last few months, valuations appearing rich, and risk appetite relatively light, we think it will require above-average end-user demand to underwrite this auction smoothly.”

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J.P.Morgan note that Wednesday will see Treasury “auction $35bn 10-Year notes, $1bn smaller than the last new-issue auction in May. Since the last auction, 10-Year yields have declined by 17bp, though they are 19bp above their local lows reached last week. At current levels, yields appear more than 30bp too low relative to fundamental drivers, and the sector is modestly rich versus the wings after adjusting for the level of rates and the shape of the curve. The WI roll opened at -1.0bp, somewhat richer than our estimates, and is trading at -0.625bp, underperforming the erosion of carry. Overall, with yields near the lower end of the range they have held over the last few months, valuations appearing rich, and risk appetite relatively light, we think it will require above-average end-user demand to underwrite this auction smoothly.”