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

J.P.Morgan note that Wednesday will see Treasury “auction $37bn 10-Year notes, $2bn smaller than the last new-issue auction in November. 10-Year yields have risen ~23bp since the January reopening auction and are at their highs for the current cycle. Consistent with the record end-user demand in today’s 3-Year auction, we note that the recent rise in yields might entice buyers, particularly given the small decline in net duration shorts observed in our Treasury Client Survey. On the other hand, the sector appears slightly expensive along the curve after adjusting for the level of rates and the slope of the curve. The 10-year roll opened at +0.75bp and is currently trading at -0.10bp. Despite valuations remaining slightly expensive, we think that with yields trading at their cycle highs and a smaller auction size than last month, tomorrow’s auction should be digested relatively smoothly.”