J.P.Morgan Suggest 5-Year Supply May Require Concession

Ahead of Wednesday’s 5-Year auction J.P.Morgan note that “Treasuries remain rich relative to the market’s Fed and inflation expectations as well as our medium-term growth forecasts. Along the curve, the 5-Year sector looks fairly priced on the fly after adjusting for the level of rates and the shape of the curve. The WI roll opened at -1.75bp, and has cheapened to -1.3bp since. On net, given the recent move to lower yields, and with valuations looking fair on the curve and rich to fundamental drivers, we think tomorrow’s auction could require a further concession in order to be digested smoothly.”