VIEW: J.P.Morgan were "pleasantly...........>

US TSYS: VIEW: J.P.Morgan were "pleasantly surprised with the level of end-user

demand in today's 20-year auction, though it remains to be seen whether it will

be sustained in coming months. That being said, we think there is value in the

20-year sector. The 20-year sector is trading near its cheapest levels of the

past 5 years versus a 50:50 combination of 10- and 30-year Treasuries. Now at

least some this cheapening reflects the decline in long-term yields and curve

steepening at the long end. However, the 20-year sector offers more yield per

unit of duration than surrounding tenors at the long end of the curve. Thus, we

recommend overweighting the 20-year bond versus the wings, and recommend buying

the new-issue 20-year versus a 33:65 curve- and level-neutral weighting of

10-year notes and 30-year bonds:

- Sell 33% risk, or $17mn notional of 0.625% May-30s (yield: 0.678%)

- Buy 100% risk, or $28.2mn notional of 1.125% May-40s (yield: 1.175%)

- Sell 65% risk, or $13.5mn notional of 1.25% May-50s (yield: 1.398%)

- Weighted spread is 4.7bp. One-month weighted carry is 0bp and roll is 0.6bp"