Morning Report: JP Morgan sees the 10 year at 3.5% by the end of 2023

Vital Statistics:

Stocks are higher this morning on no real news. Bonds and MBS are flat.

The week ahead will be dominated by the jobs report on Friday. We will also get ISM data and productivity. The Street is looking for about 200k jobs and for wage inflation to decelerate to 0.3% MOM and 4.2% YOY. It will also be a big week for earnings with reports from heavyweights like Apple and Amazon.

The Japanese Government Bond yield rose another 5 basis points in overnight trading. The Bank of Japan hinted at loosening its tight control over long-term bond yields, which has added 15 bp in yield over the past two trading days. Global sovereign yields correlate, so this is supporting the 10 year bond yield. The other Asian story is potential deflation in China, which has the potential to push inflation and yields lower.

JP Morgan believes that bond yields have peaked in the US and will drift lower for the rest of the year. “We continue to believe that US 10-year bond yield has peaked at 4.2%, a call we made last October,” the financial institution stated. JPMorgan added: “Our FI team has 3.5% end year target…We believe that yields are more likely to move lower in 2H from current levels, rather than higher. There is further evidence that we are moving into a disinflation phase,” JPMorgan noted. “In addition, there is a potential for a policy mistake, keeping the yield curve strongly inverted, and a risk of a rollover in consumer spending and labor markets, each of which could bring yields down in 2H of this year.”