J.P.Morgan Recommended 1s/2s Flattener

J.P.Morgan write “stay tactical, since most trades present as just a derivative of the US front-end in the near-term. This biases us toward front-end flatteners into the coming week’s data. Most outcomes for U.S. payrolls seem to tilt this way - the data are either too hot (50bp March hike) or too cold (the downturn appears more imminent).”

• “In Australia too, the labour market has already softened but Governor Lowe - while opening the door to a pause - downplayed the magnitude, due to technical factors. So, if unemployment comes down, it’s not clear the terminal rate moves much, whereas if unemployment holds its prior increase, cyclical traction appears greater than the RBA had assumed. The historic lows in most belly flies (1s/5s/10s, 2s/5s/10s etc) would roll up to the front-end, consistent with cyclical risks having also come forward at the global level. We open a tactical 1s/2s swap flattener, which also plays to our view of normalization in BBSW-OIS on a potentially faster timeline than assumed.”
• The recommended entering the 1s/2s flattener at -2.7bp.