J.P.Morgan Look At Lagged Moves In Long End Curves

Late on Tuesday “J.P.Morgan wrote the 20s/30s curve has lagged the steepening of the broader curve and now appears approximately 3bp flat relative to the slope of 10s/30s.”

• “We are still likely at the early stages of increases to Treasury coupon auction sizes, which could be an impediment to long-duration risk free assets.”
• “However, it’s notable that from the nature of the auction increases Treasury announced in August, that it is paying careful attention to the “less liquid” on the runs, namely 20-year bonds and 7-year notes.”
• “This indicates the 20-year sector should be more insulated from underperformance, and combined with the relative value, we recommend 20s/30s steepeners (100% risk) hedged with 10s/30s flatteners (29% risk).”