JPMorgan Says Fed's Triple Play Makes Shorting Notes Dangerous

  • Yields have traditionally fallen after Fed updates guidance
  • Strategists said they closed bets against U.S. 2-year notes

History has a way of repeating itself in the U.S. Treasury market in the weeks surrounding quarterly Federal Open Market Committee meetings that include a press conference and an update to officials’ rate and economic projections.

Using the two-year notes as a gauge in six of the last eight of these triple-play FOMC events, yields rose about five basis points in the weeks leading up to the meetings, and reversed lower after the gatherings, according to JPMorgan Chase & Co.’s Alex Roever and Kimberly Harano.

“Given these factors, we think the front end is more fairly valued and unwound front-end duration shorts on Wednesday,” Roever and Harano wrote in a report Friday.

JPM forecasts the two-year note yield will end 2017 at 1.6 percent, compared to its current 1.43 percent level. They predict the Fed will hike rates again in December, in line with the signal from the median projection in central bank officials’ quarterly Summary of Economic Projections (SEPs) released last week, and then do so three more times in 2018.

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