Odd Lots JPMorgan's Jay Barry on the Big Selloff in Bonds
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Oct 11, 2023 Jay Barry, Co-head of US interest rate strategy at JPMorgan Chase, dives into the recent turmoil in bond markets. He explains how soaring yields on US Treasuries are influenced by economic growth expectations, inflation, and the Federal Reserve's outlook. Barry discusses the complex interplay of supply and demand, and the crucial impact of term premium on investor behavior. As sentiments shift among investors, he sheds light on the awakening of bond vigilantes and what this means for the future of U.S. debt.
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Bond Selloff Drivers
- Multiple factors caused the bond market selloff, including improved US economic outlook and rising inflation expectations.
- The initial selloff was driven by increased growth expectations, while the later part was influenced by rising inflation expectations.
Long-Term Yield Sensitivity
- Long-term yields, like the 30-year, are still sensitive to short-term economic changes and Fed policy shifts.
- While the relationship is less direct than with short-term yields, it's important to consider how policy changes influence the entire yield curve.
Fair Value Model
- JPMorgan's fair value model helps identify overvalued bonds by considering fundamental drivers and historical trends.
- The model signaled a significant deviation from fair value during the recent selloff, similar to levels seen after the UK LDI crisis.