Preview 7Y Note Auction

Market participants are a little wary of upcoming $62B 7Y Note auction as Tsy futures trim gains and equities trade weaker -- much like last month. Tsys gapped lower after the weakest 7Y auction on record last month that tailed 4bp: high yield 1.195% vs. 1.155% WI (had stopped through in January on high yield of 0.754% vs. 0.757% WI); Indirects drew 38.06% vs. 64.10% prior, directs 22.13% vs. 16.28%, dealers 39.81% vs. 19.62%.

Current WI for 7Y trading 1.280% / 1.275% compared to 1.195% last month.

• BMO strategists note "concern that a repeat performance or step-back by Japanese investors may trigger another bearish episode. However, the auction sponsorship we have seen since then across the curve does not suggest any underlying erosion of primary market appetite for Treasuries."
• Cantor Fitzgerald strategist Justin Lederer does "not expect results to mirror last month especially given the immense volatility the market encountered on that day. We believe there will be decent sponsorship (currently trading 1.264%, WI roll 1.625bps) as the market has settled in (traded very well since late last week)/month and quarter-end but do believe participants will be cautious with setups and especially their bids awaiting auction participation stats for further market direction.