J.P.Morgan Flag The Potential For Further Month-End Action

J.P.Morgan note that “while historical data indicates that the relative outperformance of equities versus fixed income is supportive of lower Treasury yields into quarter-end, we would have expected a smaller move than the 13bp decline that has occurred over the last two days. As we have emphasised recently, impaired liquidity conditions are likely exaggerating the rates market volatility and could have amplified the moves in recent days. Indeed, Treasury market depth has stabilised over the last few weeks, but remains depressed at its lowest level since the spring of 2020, when market functioning had begun to tentatively heal following the severe disruptions around the onset of the COVID-19 pandemic. It’s likely much of this portfolio rebalancing has already occurred, but we think it’s very unlikely the passively-managed bond universe, which represents a 33% share of total U.S. taxable fixed income AUM, has already rebalanced ahead of month-end tomorrow. By definition these funds track index performance, and thus will not rebalance until the close on month-end.”