J.P.Morgan Recommend 3-Year Spread Wideners

J.P.Morgan note that “looking ahead, with the Fed beginning to slow its pace, we would look for term structures to stabilize and for positive carry & slide trades to begin to perform well. One such opportunity in swap spreads can be found in 3-Year spread wideners. Likely because of market segmentation reasons, there has been a persistent differentiation between the 2- and 3-Year sectors, which has led to a considerably inverted spread curve between 2s and 3s.”

• “This, coupled with the fact that in the 2-Year sector spreads appear homogenous across issues of varied original issue tenors, means that 3-Year swap spread wideners have attractive slide as the trade ages towards and into the 2-Year sector. Thus, given the attractive slide in this sector, and our expectation that the upcoming environment will be favourable for slide trades, we recommend initiating swap spread wideners in the 3-Year sector.” They recommended entering a widener in 3-Year SOFR swap spreads at -12.1bp.