J.P.Morgan's Post-Fed Overview

J.P.Morgan note that "directionally, rising Treasury yields make sense given the relatively hawkish nature of today's outcome, as intermediate yields realized their largest one-day move since the weak spate of Treasury auctions in late February. Indeed, with the Fed's latest dots indicating hikes in 2H23, this ratified the market's own expectations, and OIS forwards are now pricing a hike by February 2023. However, we continue to think the move has been constrained by a breadth of bearish positioning: as our Treasury Client Survey shows bearish positioning has become more widespread across our client franchise, even as the size of positions has declined, and this could limit the follow-through to higher yields in coming weeks. Nevertheless, even with the move in nominal yields today and the narrowing in breakevens, valuations remain somewhat rich. As a result, we recommend maintaining shorts in 10-year Treasuries. Meanwhile, with the 9bp narrowing in 5-year breakevens, TIPS appear materially cheap to us at these levels, and we maintain 5-year breakeven wideners."