J.P.Morgan Think 7s Will Need Some Concession To Be Digested Smoothly

Ahead of Wednesday’s 7-Year auction J.P.Morgan note “7-Year yields have declined 40bp since the previous auction and intermediate Treasuries remain slightly rich relative to their fundamental drivers. Along the curve, the 7-Year sector appears fairly valued versus the wings after adjusting for the level of yields and the shape of the curve. Meanwhile the WI roll opened at -1.5bp, roughly in line with our estimate, and has since richened somewhat. Given the valuation backdrop and low risk appetite, we believe this auction is likely to require some concession from current levels in order to be absorbed smoothly.”