J.P.Morgan Hold Off On Fading Recent Rally Given Labor Market View, Hold 10s/30s Steepeners

J.P.Morgan note that “given the latest rally, long-term Treasuries remain quite rich after controlling for their fundamental drivers, but we are loath to fade this rally, as our economics team looks for further softening in labor market data over the coming days. First, we forecast initial claims increased to 7k to 205K in the week ending April 1 (consensus: 200K), as updated seasonal adjustment factors could point to a slightly higher trend relative to current readings. Second, we look for 200K in nonfarm payroll growth in March (consensus: 240K).”

• “If our expectation for the labor market to soften more than consensus is realized, this should be supportive of further bullish steepening in the near-term; thus we are hesitant to fade the rally at this point. Instead, we continue to hold 10s/30s steepeners as a medium-term position around the coming end of the Fed tightening cycle.”