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J.P.Morgan Recommend 5-Year Spread Narrowers

US SWAPS

J.P.Morgan note that “after the slow but steady widening in the belly, we think swap spreads in the belly have run ahead of their fundamental drivers and now appear rich to fair value.”

  • “In addition to fair value considerations, the outlook for the factors in our model also point to narrowing pressure.”
  • “First, high grade issuance tends to be heaviest in March. Even if this March proves to be somewhat lighter given heavier-than-usual YTD issuance, elevated issuance could still provide some narrowing pressure as some fraction of this will likely be swapped.”
  • “Second, as we have noted, lacklustre deposit growth (as well as 2022's punishing AOCI drawdowns) is likely to keep bank demand for Treasuries muted for the foreseeable future.”
  • “Third, USD strength could bias swap spreads in the belly narrower as well.”
  • As such, they recommended entering a 5-Year swap spread narrower at -18.7bp.
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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