J.P.Morgan Recommend Longs In 5s

Late on Tuesday J.P.Morgan wrote “with this bearish move now in line with the other large idiosyncratic sell-offs of the last decade, with valuations now flagging cheaper now relative to their drivers than at any point in the last year, and positioning more neutral than it’s been since this spring, this presents a strong opportunity to add duration.”

• “However, we are respectful of this move, and noting that with more increases in Treasury coupon sizes likely over the coming months, and the nature of Treasury demand shifting more toward price sensitive buyers, that the term premium is likely to increase further from current levels, and in turn should result in steeper curves and the 10-year sector underperforming along the curve.”
• “Accordingly, we prefer to add exposure shorter along the curve, and recommend adding longs in 5-year Treasuries at current levels.”
• The recommendation came with 5s trading at 4.799%, with prints as high as 4.87% seen thus far in pre-NY trade, last showing 4.815%