Monday, August 30, 2010

Summary of JP Morgan -US Fixed Income Markets Weekly

US Fixed Income Markets Weekly. The weakness in economic data has increased the chances that the Fed will expand its Treasury purchase program, although Fed Chairman Bernanke did not in any way signal that such a decision was imminent. Worsening macro fundamentals should remain a headwind to the risky asset rally, but the scarcity of supply in credit markets remains a powerful offset. Thus, despite steadily rising downside risks to the economy, we remain largely positive on spread product. Instead, the best ways to position for a worsening economy likely involve positioning for the deflationary risks that accompany economic weakness. This, together with growing prospects of QE expansion, makes us bullish on intermediate maturity Treasuries and causes us to retain a curve flattening bias. Although the weakening of the economy does raise concerns about credit

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