J.P.Morgan Look For Relatively Smooth Digestion Of 10-Year Supply

J.P.Morgan note that Wednesday will see the Treasury "auction $41bn 10-year notes, unchanged in size from the last new-issue auction in November. Since the last auction, 10-year yields have declined by 1bp but remain near their highest levels of the last 10 months and appear fairly valued compared to their fundamental drivers. From a relative value perspective, the sector also appears fairly valued along the curve after adjusting for the level of rates and the shape of the curve. The 10-year roll opened at +2.0bp, close to our fair value estimate, and is now trading at 1.625bp, roughly in line with the erosion of carry. Lastly, dealer positions in 7- to 11-year Treasuries have declined sharply over recent weeks, and our Treasury Client Survey has moved to its shortest levels in more than a year, which should allow this supply to be digested more easily. Overall, with yields near local highs, dealer inventory at its lowest levels since last summer, and investor positions short, we think tomorrow's supply should be digested relatively smoothly."