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J.P. Morgan Cautious On Short-Term Prospects For Duration

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J.P.Morgan note that “with yields sitting near their local highs, it would be tempting to add duration here, especially when both the duration and magnitude of this selloff are in line with the extent of other large selloffs over the last decade, and when our valuation framework indicates Treasuries continue to trade significantly cheap versus their model-implied fair value.”

  • “However, to the extent that consensus growth forecasts continue to be revised upward, we are not sure there’s room for yields to decline significantly from current levels.”
  • “Moreover, end users may not want to extend duration and give up yield in this environment.”
  • “Finally, we are somewhat concerned that incoming policy events may be neutral to bearish for yields from here.”
  • “Powell is unlikely to be dovish in the Q&A. Meanwhile, we see little room for Treasury to surprise in the quarterly refunding announcement.”
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J.P.Morgan note that “with yields sitting near their local highs, it would be tempting to add duration here, especially when both the duration and magnitude of this selloff are in line with the extent of other large selloffs over the last decade, and when our valuation framework indicates Treasuries continue to trade significantly cheap versus their model-implied fair value.”

  • “However, to the extent that consensus growth forecasts continue to be revised upward, we are not sure there’s room for yields to decline significantly from current levels.”
  • “Moreover, end users may not want to extend duration and give up yield in this environment.”
  • “Finally, we are somewhat concerned that incoming policy events may be neutral to bearish for yields from here.”
  • “Powell is unlikely to be dovish in the Q&A. Meanwhile, we see little room for Treasury to surprise in the quarterly refunding announcement.”