J.P.Morgan Recommend 10-Year Breakeven Wideners

J.P.Morgan note that "on Friday, following better data from the October employment report, we highlighted that risks for breakevens were shifting bullishly, but we were hesitant to initiate longs given near-term risks associated with rising COVID-19 case counts and new U.S. restrictions on mobility. However, following the vaccine announcement from Pfizer, the medium-term outlook has shifted more positively, and we recommend adding 10-year breakeven wideners. Despite today's widening, 10-year breakevens remain near the middle of their three-month range, and 10-year TIPS outperformed only modestly versus the factors in our fair value model, after underperforming 10bp last week, and still appear within the standard error of our model. While our forecasts incorporate an assumption that the virus will remain a drag on economic growth in the coming quarters, today's announcement adds upside risks to our forecasts, particularly in 2021. Pfizer expects to produce globally up to 50mn vaccine doses in 2020 and up to 1.3bn doses in 2021, with early doses likely to be distributed first to healthcare workers and high risk groups. Pfizer is planning for Emergency Use Authorization (EUA) submission to the FDA once two months of safety data has been gathered, likely next week, and importantly, there are a number of other vaccines undergoing Phase 3 trials, whose results could be announced in the near term as well. Combined with economic data that have reinforced a picture of positive growth momentum at the start of this quarter, these developments bode well for a continued recovery in labor markets heading into next year, and we expect medium-term inflation expectations will continue to move higher from here. We like positioning longs in the 10-year sector given that the long-end is already trading near YTD wides and that the front-end is likely to remain volatile, especially given near-term downside risks to oil prices."