J.P.Morgan Flag The Need For Concession In 20s To Facilitate Smooth Supply

Ahead of Wednesday’s 20-Year Tsy auction J.P.Morgan note that “20-Year yields have declined roughly 13bp since the December auction. Along the curve, the 10s/20s/30s butterfly is roughly unchanged over this period, but remains near the richest levels of the past year. Though much of the richening we’ve observed since last summer has been justified by the improved liquidity conditions as Treasury has right-sized 20-Year auction sizes relative to surrounding tenors, the 20-Year sector appears somewhat rich on the fly after adjusting for the level of 20-Year yields, the shape of the 10s/30s curve, and HG spreads.”

• “With intermediate Treasuries looking somewhat rich to fair value, and the 20-Year sector looking rich on the curve, we think tomorrow’s auction will require some further concession in order to be digested smoothly.”