J.P.Morgan Look For Smooth Digestion Of 5-Year Supply

J.P.Morgan note that Wednesday will see Treasury “auction $48bn 5-Year notes, $1bn smaller in size than last month. While 5-Year yields are now 14bp below the levels of the April auction, we note that the 5-Year sector appears modestly cheap after adjusting for the level of rates and the shape of the curve. The WI roll opened at +0.375bp, slightly rich to our fair value estimate, and is now trading at -0.40bp, roughly in line with the erosion of carry. Despite the recent flight-to-quality rally, valuations in the sector look somewhat cheap on the curve and we think this should allow the auction to be digested smoothly.”