Nomura N.American head of rate...........>

US TSYS/7Y: Nomura N.American head of rate research George Goncalves and

analysts Stanley Sun and Penglu Zhao are "cautiously constructive" on 1pm ET

$28B 7Y auction as "7yr has cheapened outright and on the curve since June,

which may provide value to investors. Strong auction results this week may be

reflective of investors' demand on the front and belly, as both data and the DC

outlook are skewing towards some downside surprise."

- But they warn July FOMC suggested "balance sheet reduction process may start

very soon, which could dent some duration appetite on the belly. Tightening

spread versus overseas sovereigns may reduce some foreign interests. After

strong 2yr and 5yr auctions this week, we think investors' demand for US

Treasuries returned, especially after overseas central banks leaned to the

dovish side, and both US data and policy risk started to skew to a downside

surprise."

- They add 7yr valuation may be "supportive after the end-June selloff, both

outright and on the curve. The tightening spread between 7yr UST and overseas

sovereign bonds may also dampen some foreign interest."