J.P.Morgan: Maintain 3s/10s Steepeners Despite Positioning/Georgia

J.P.Morgan note that the Georgia Senate run-offs have "taken on added importance for market participants, as a Democratic sweep will leave the party in control of both houses of Congress, in addition to the White House, for the next two years. This raises the risk that Congress could pass additional fiscal stimulus, thereby raising growth expectations. Naturally, this would likely drag long-term yields higher as Treasuries remain sensitive to growth expectations, albeit with a lower beta than in the past. Such an outcome would also likely support a continued widening in breakevens. To an extent, it seems market participants are positioning for this outcome: our latest Treasury Client Survey, released this morning, shows the most net shorts since February 2020 and is more than 1.9 standard deviations shorter than its average over the prior year. Thus, if the Senate stays in Republican hands, yields could reverse lower over the near term: we have historically found that when our survey moves more than 1.5 standard deviations away from its one-year average, there is a tendency for yields to mean revert. Nonetheless, given that large-scale fiscal stimulus was delivered earlier than we had expected, and that this should lead to better growth outcomes in 2021, we recommend maintaining 3s/10s steepeners."