JPM: Positioning May Need To Turn More Neutral Before Steepening Seen

J.P.Morgan note that with the bulk of Wednesday's move "occurring ahead of the FOMC minutes, we continue to think position technicals have exacerbated the decline in yields in recent days. Our latest Treasury Client Survey shows some short covering occurred over the past week, but the breadth of bearish duration positions remains on par with 2017-2018, when the Fed was steadily raising rates and normalizing its balance sheet. Taking a longer-term view, the exhibit also shows that our survey remains at the shorter end of readings we have observed over the past 15 years. Many of these bearish positions have been held in the form of curve steepeners. Exposure to a steeper curve has fallen since the June FOMC meeting, but the imbalance of short duration positions at the long end remains well above longer-term average levels (per CFTC data), and in line with levels that persisted when the Fed eased 75bp in H219. On balance, until these positions turn more neutral, it will be difficult for yields to rise and the curve to steepen back."