J.P.Morgan Recommend 7-/10-Year Steepener

J.P.Morgan note that “in the futures market, foreign investors’ net JGB shorts are near maximum short levels. The 7s/10s JGB curve is now at the flattest level in many years. Upward pressure on JGB yields is likely to persist for some time as overseas central banks remain hawkish/become even more hawkish. The 10-Year JGB yield closed last week close to the BoJ’s upper limit. Bearish trades are likely going to be expressed by shorting JGB futures or shorting super-long JGBs. That said, we think that foreign investors’ net shorts are stretched. Even if they remain bearish on JGBs overall, there is likely to be short covering in a meaningful scale as they take profit on their trades. We enter a steepener on the 7s/10s JGB curve in anticipation of foreigners’ short covering in the JGB futures market.” They recommended entering the position at 9bp.