JPMorgan's Michele on Bonds: 'The Dominoes Are Starting to Fall'

Summary

Bob Michele, JPMorgan Asset Management's global head of fixed income, says the bond market has reached maximum pain after aggressive front-end rate-hike pricing and a steep long-end selloff. He says JPMorgan was buying 30-, 20-, and 10-year bonds and sees long-end yields in the US, Japan, and Australia as too cheap. He points to central-bank credibility, Middle East stabilization, and upcoming midterms as key market catalysts. He concludes nominal and real yields are too cheap and present a good buying opportunity.

• Bob Michele says bond market pricing implies extreme bearishness and maximum pain.
• He says JPMorgan has been buying long-dated bonds.
• He names 30-year, 10-year, and 20-year bonds as purchase maturities.
• He says long-end yields in the US, Japan, and Australia have backed up too far.
• He cites central-bank credibility starting with the ECB, then the Fed, and expected Bank of Japan.
• He says Middle East stabilization is another needed ingredient.
• He mentions midterm elections as a possible next domino.
• He concludes nominal and real yields are too cheap and a good buying opportunity.