J.P.Morgan Recommend 10-/30-Year Steepeners

J.P.Morgan note that “given our tactical duration view, it would seem inconsistent to recommend steepeners currently. However, we think there are numerous reasons to add steepener exposure now as an expression of our medium-term views.”

• “There is some asymmetry to the curve now, as the long end remains close to its flattest levels of the last 30 years. 10s/30s is less than 10bp from its flattest levels sustained of the cycle. Thus, current levels are attractive for adding steepener exposure.”
• “Though we traditionally view long-end steepeners as a low-beta proxy for duration longs at the front end of the curve, this sensitivity to moves in yields has been shrinking: 10s/30s has had only a 30% beta to changes in front-end yields in recent months. This makes sense if we are approaching a shift in Fed regime: realised betas between various points along the yield curve tend to shift in these periods.”
• “Though there is a risk the curve does not steepen aggressively over the near term, given traditional curve behaviour around the end of tightening cycles, attractive valuations, as well as reduced sensitivity to moves in front-end yields, we recommend adding 10s/30s steepeners for a medium-term trade.” They recommended entry at 5.34bp.