J.P.Morgan Remain Neutral On Duration, Look To Add In 3- To 5-Year Sector If Yields Move Higeher

Late on Wednesday J.P.Morgan wrote “markets are still pricing in a more dovish path for the Fed than our modal view, and we would prefer to wait for somewhat higher yields before adding duration.”

• “However, we would note that the technical backdrop seems more favorable than it did a few weeks ago: net longs in our weekly Treasury Client Survey have been pared back in recent weeks, and the share of neutrals in our survey has risen to the highest since May 22, when the debt ceiling debate was at the forefront.”
• “More broadly, the share of neutrals is more than 1.5 standard deviations above its decade average, and could indicate that given the combination of strong data and mixed Fedspeak, there is relatively low conviction from our investor base at current.”
• “Looking ahead, we remain neutral on duration: though markets are pricing a less dovish path than a few days ago, valuations look fair in intermediates, and positions have turned more neutral.”
• “Thus, we prefer to be patient and would look to add duration in the 3- to 5-year sector on any further 10-15bp backup.”