J.P.Morgan Look For 2-Year Supply To Be Digested With Relative Ease

J.P.Morgan note that Tuesday will see “Treasury auction $47bn 2-Year notes, $1bn smaller in size than last month. The WI 2-Year roll opened at +5bp, slightly above our fair value estimate, and has since declined to 3.874bp, roughly in line with the erosion of carry. 2-Year yields are only 2bp higher since the April auction and OIS forwards continue to imply roughly 50bp of tightening at each of the next two Fed meetings, as well as a terminal rate near 3.10%, in line with our own forecast. Despite small moves since the April auction, we think the current level of yields should continue to attract buyers, particularly from the investment manager community, allowing tomorrow’s auction to be digested with relative ease.”