J.P.Morgan Recommend A Couple OF SOFR Positions Focused On Carry

Late on Friday J.P.Morgan noted that they believe that “the easing priced into forwards is unlikely to be realized, which means that "roll-up" yield curve carry trades are likely to be profitable in coming weeks. Second, Fed expectations could be volatile in the near term, and hedging this exposure in carry trades will likely help in improving carry-to-risk ratios.”

• “One way to position for such slide on the yield curve, while mitigating risk with respect to shifting Fed expectations, is to initiate exposure to a flatter U5/M6 3M SOFR futures curve, hedged with 110% risk in Z5/U6 3M SOFR futures curve steepeners.”
• “In a similar vein, we recommend buying the belly of the 35/65 weighted H5/H6/Z6 3M SOFR futures butterfly. This weighted butterfly spread has been highly mean reverting in a relatively tight range and is currently above its recent historical average level. But far more importantly, 3-month slide on this butterfly spread stands at ~11bp, making this another attractive way to position for carry relative to risk.”