J.P.Morgan Think 20s Will Require Concession For Auction To Pass Smoothly

Ahead of Tuesday’s 20-Year Tsy auction J.P.Morgan note that “20-Year yields have risen roughly 39bp since the August auction and are currently near their cycle highs.”

• “Along the curve, we note that the 10s/20s/30s butterfly has richened somewhat since this summer when it traded at multi-year cheap levels, and the 20-year sector now appears somewhat rich after adjusting for the level of rates and the shape of the curve.”
• “With monetary policy uncertainty top of mind ahead of Wednesday risk-appetite is likely to remain low at tomorrow’s auction.”
• “However, last week’s strong 30-year auction results suggests that there is investor appetite for long-duration Treasuries, where yields are less sensitive to Fed outcomes than at the front end.”
• “Despite historically cheap outright levels and a reduced auction size, we think tomorrow’s auction should require some concession given that risk appetite is unlikely to increase significantly ahead of the Fed and that valuations appear slightly rich on the curve.”