J.P.Morgan: Positioning And Timing Impacted Wednesday’s Price Action

J.P.Morgan note that “despite the intraday reversal (on Wednesday), it’s telling that Treasury yields were unable to follow through considerably higher, and the change on day looks rather muted all things considered. This is particularly notable as valuations continue to flag as rich in our fair-value framework.”

• “Thus, we attribute this to both position technicals and where we stand in the year as well.”
• “As we’ve highlighted for the last week, both our Treasury Client Survey and the CFTC’s weekly Commitment of Traders release indicate positioning has turned more bearish on duration over the last month. Thus, it’s possible the brief move to higher yields was used as an opportunity to reduce risk.”
• “This is particularly important, as today was likely the last meaningful trading day of 2022, and liquidity conditions should deteriorate further from current levels. Total Treasury market depth tends to decline about 25% over the course of December with most of this move occurring over the last 10 days of the year.”