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

Ahead of Tuesday’s 2-Year Tsy auction J.P.Morgan note that “the WI 2-Tear roll opened at +2bp, slightly above our fair value estimate and has since widened to 2.7bp, amid increased repo specialness in 2-Year notes.”

• “Dealer inventory in the front end is very low relative to recent averages, the current 2-Year note is trading roughly 100bp special in repo after it was oversubscribed at recent SOMA lending operations.”
• “Given the large short base at the front end, very low dealer inventory levels in front-end coupon Treasuries, the moves since the July auction, and limited room for short-term Fed expectations to move materially higher before the release of the September data, we think that investors might use the auction as a liquidity event to cover shorts, allowing the auction to be digested with relative ease.”