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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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.
Shift in Global Rate Dynamics
- Before 2020, low global interest rates and the Bank of Japan's policies helped keep US long-term yields lower.
- Now, rising global rates and the potential shift in the Bank of Japan's yield curve control are no longer anchoring US yields.