JPM Believe That 2-Year Supply Requires Modest Concession

J.P.Morgan note that Tuesday will see the Treasury "auction $60bn 2-year notes, unchanged in size from last month. Since the January auction, 2-year yields have declined 1bp, and are within 1bp of their all-time lows. The WI 2-year roll opened at +0.375bp, in line with our fair value estimate, and remains at that level, modestly underperforming the erosion of carry. Though front-end yields are likely to be well anchored by a Fed on hold and strengthened forward guidance, with 2-year yields near all-time lows and close to IOER, it will become more difficult for yields to decline further, given their behavior the last time rates were pinned at the ELB and relative value considerations for banks. Accordingly, we think tomorrow's auction will require a modest concession to underwrite smoothly."