Treasuries: Reality awaits

Research evidence excerpt

Treasuries: Reality awaits

easury Client Survey Index;

(%), J.P. Morgan U.S. Forecast Revision Index (%), Fed B/S as share of the US economy (%), and (Longs+Neutrals)/(Shorts+Neutrals), see Survey Says: Using the Treasury Client Survey to predict

a dummy variable for trade policy uncertainty that is 1 between 4/2/25 and 2/26/26. Regression over rates moves, 7/21/23 for more details. CFTC refers to the non-commercial net longs in UST and SOFR

the last 5 years: R-squared = 9.3%, SE = 13.9bp futures contracts reported by the CFTC. CTA beta is the four-week partial beta of SG CTA Index to

Source: J.P. Morgan, Federal Reserve 10-year UST yields. Real money beta is the eight-week partial beta of excess returns of the 25 largest

actively managed US core bond funds to 10-year UST yields. Macro HF beta is the six-week partial

beta of HFRX Macro/CTA Index to 10-year UST yields

Source: CFTC, Bloomberg Finance L.P., SG, HFR, J.P. Morgan

In light of this, we go back to the well and once again find more value in curve flatten-

ers. Figure 6Mostcurvepairsapeartostepandweprefer5s/30sflatenerstopositionforhigheryieldswithsomerelativevalue displays a number of wider Treasury curve pairs, alongside their medium-term

ranges, as well as statistics from our fair-value framework and carry and roll calculations.

The table shows that, broadly speaking, the Treasury curve should have flattened more giv-

en the hawkish repricing in Fed expectations that has occurred over the last few weeks.

We have argued that this divergence has been driven by global factors, mainly the ongoing

rise in JGB yields: unlike during the NIRP, YCC, and QE era a decade ago, Treasuries no

longer look attractive to local-currency funded investors in Japan, and bearish develop-