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

J.P.Morgan note that Tuesday will see Treasury auction “$33bn reopened 10-Year notes, unchanged in size from the last reopening auction in June. Since the last auction, 10-Year yields have declined 4bp, but this masks extremely high volatility, as yields traded as high as 3.48% in the days leading up to the June FOMC meeting and as low as 2.75% as recession fears came to the forefront last week. Looking through this volatility, valuations appear fair at current levels after controlling for the market’s Fed policy, inflation, and growth expectations. Turning to relative value, the 10-Year sector is trading near its richest levels of the last two years along the broader curve. Overall, with yields in the lower end of the range they have held for the past month and investor risk appetite relatively light, we think it will require robust end-user demand to underwrite this auction smoothly, knowing it comes less than 24 hours prior to the release of the June CPI reading.”