J.P.Morgan Set Weighted Belly Richening 2-/3-/5-Year Butterfly

J.P.Morgan note that “amid the volatility at the front end, the 3-Year sector has underperformed on the curve and the 2s/3s/5s butterfly now stands at the widest levels in 13 years. Despite the historically wide level, we note that this fly exhibits a high degree of directionality to higher front-end yields: the 3-Year tends to cheapen along the curve front-end yields rise and vice versa. Thus, going long the 3-Year sector along the curve represents a bullish view, one we’re unwilling to underwrite yet, even with how quickly OIS forwards have repriced higher in recent weeks. Nevertheless, we can discern some relative value as the 3-Year sector appears somewhat cheap along the curve after adjusting for the level of yields and the slope of the curve. Accordingly we recommend initiating 60:46 weighted 2s/3s/5s belly-richening butterflies, at -1.7bp."

• “Separately, in the latest moves, the 20-Year sector has significantly outperformed on the curve, and has swung from appearing historically cheap in early March to somewhat rich now. Accordingly, we recommend taking profits on 40:56 weighted 1.375% Nov-31s/2.25% May-41s/2.0% Feb-50s belly-richening butterflies.”