J.P. Morgan: Expects 10 year yields to fall to 3.4% in 2023

J.P. Morgan is out with their key 2023 fixed-income themes:

• sees the 10 year falling to 3.4% (is currently at 3.748%).
• Looks for the curve to steepen but looks for more limited yield declined relative to prior cycles
• looks for long-term fixed income issuance to decline but to remain above pre-pandemic averages
• projects a muted demand from bank and foreign investors and think retail and pension funds will be better buyers
• expects yields to fall in the long and to steepen, following Fed on hold cyclicals
• expects better anchor inflation Inflation Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Read this Term expectations
• clarity over the path for monetary policy should support liquidity Liquidity Liquidity refers to the extent of a financial instrument’s ability to be bought or sold without causing price fluctuations. Thus, if an asset is extremely liquid, it means one can trade that asset in the knowledge that one’s specific dealing won’t create significant movements in the market.This is because there exists such a large number of traders going both long and short, generating huge volume for that particular asset. Liquidity in the FX MarketTake the example of the foreign exchange marke Liquidity refers to the extent of a financial instrument’s ability to be bought or sold without causing price fluctuations. Thus, if an asset is extremely liquid, it means one can trade that asset in the knowledge that one’s specific dealing won’t create significant movements in the market.This is because there exists such a large number of traders going both long and short, generating huge volume for that particular asset. Liquidity in the FX MarketTake the example of the foreign exchange marke Read this Term benefiting auction cyclical trading strategies
• expects real yields to decline
• with the Fed points to slow, carry and slide should reemerge as an attractive theme on the yield curve next year
• expects money market rates to continue to drift higher and then pause in step with Fed funds

I love the year-end projections, but imagine that at the end of last year no one anticipated rates moving up to 4+ percent. So keep that in mind.