A J.P. Morgan strategist said that compared to “fair value,” the US Treasury yield curve has become too steep. The 5s/30s spread has climbed from 30 basis points a month ago to 43 basis points. Strategists such as Jay Barry wrote in Monday evening's report that compared to the J.P. Morgan Chase model, the excessive steepness of the current horizontal curve is 14 basis points. The J.P. Morgan model consists of 1y1y OIS interest rates and 5y5y TIPS break-even points. “In our opinion, the yield curve is already moving ahead of the fundamental drivers,” the strategist said. “Looking ahead, this decoupling contains the risk that the curve may flatten again in the short term.” However, Barry and his colleagues are unwilling to launch a curve flattening trade, even though they think the steep curve is “excessive.” They wrote, “We believe that the Federal Reserve's response mechanism and structural changes in US Treasury demand have supported the steeper curve, so we are unwilling to go against this long-term trend.”

A J.P. Morgan strategist said that compared to “fair value,” the US Treasury yield curve has become too steep. The 5s/30s spread has climbed from 30 basis points a month ago to 43 basis points. Strategists such as Jay Barry wrote in Monday evening's report that compared to the J.P. Morgan Chase model, the excessive steepness of the current horizontal curve is 14 basis points. The J.P. Morgan model consists of 1y1y OIS interest rates and 5y5y TIPS break-even points. “In our opinion, the yield curve's action is already ahead of fundamental drivers,” the strategist said. “Looking ahead, this decoupling contains the risk that the curve may flatten again in the short term.” However, Barry and his colleagues are unwilling to launch a curve flattening trade, even though they think the steep curve is “excessive.” They wrote, “We believe that the Federal Reserve's response mechanism and structural changes in US Treasury demand have supported the steeper curve, so we are unwilling to go against this long-term trend.”