J.P.Morgan: Front End Underperformance May Continue On Strong NFPs

Ahead of Friday's NFP print J.P.Morgan "recall that in the aftermath of the disappointing April employment report TIPS real yields led the way lower and breakevens widened, as markets briefly pushed back the expected timing of (Fed) liftoff. However, following the April FOMC minutes and the shift in tone from Fed commentary over more recent weeks, front-end TIPS have underperformed - a trend which likely has further room to run in the event of a strong gain in nonfarm payrolls tomorrow. Despite the recent underperformance, weekly inflows into TIPS-focused ETFs have continued at a robust clip, with the four-week moving average this week rising to its highest level since July 2020, and our active TIPS fund index indicates excess exposure to breakevens has risen over the past month, suggesting positioning likely remains long. Ahead of tomorrow's report, we maintain shorts in 5-Year TIPS combined with a 19% long in 1-Year TIPS."