After the safe-haven rally in Treasuries, why does JPMorgan still expect yields to rise and the curve to steepen?

What has primarily driven this Treasury rally?

In the week ended 23 October, Treasury yields fell 5–12 basis points, with the long end leading the rally and almost all of the decline concentrated on Wednesday. The spread between French and German government bonds widened by 35 basis points over the same period, and concerns about valuations of AI-related stocks added to the pressure, sending investors into Treasuries as a haven.
Safe-haven buying also changed the pricing of rate hikes: the cumulative increase implied by overnight index swaps through autumn 2027 fell from more than 90 basis points at the end of September to about 70 basis points; a full 25-basis-point hike is no longer priced in for the December meeting.
Liquidity remains the foundation of Treasuries' ability to absorb inflows. Although JPMorgan's market-functioning indicators have deteriorated as volatility rose over the past two months, they remain better than their three-year average, so pressure on European government bond markets has brought additional demand.

JPMorgan believes this week's stock-market volatility was driven more by technical factors and that the Treasury rally has stalled near technical resistance. According to its fair-value model, the 10-year yield is about 15 basis points below the level implied by fundamentals, meaning bond prices are expensive and near-term yield risks are tilted slightly upward.
This assessment depends on the stock market: as long as the S&P 500 holds the 7500–7600 range, Treasuries will have one less catalyst for further gains. The correlation between Treasury yields and the Nasdaq's movements has strengthened recently, and whether equities stabilize will directly affect rate pricing.

JPMorgan and the market consensus both expect the Federal Reserve to hold rates steady next week. At its last meeting, it raised rates against a backdrop of a 0.2% month-on-month rise in core PCE in August; this time it may pause even as the September reading rises to 0.3%. If the chair explains the pause as a wait to assess the effects of the first hike, markets may interpret that as dovish, pushing down shorter-term yields.
Relative to medium-term policy expectations, the 10-year versus 30-year yield curve has underreacted to the repricing over the past two weeks. The bank estimates that the spread between the two has narrowed by about 6 basis points, so it maintains its steepening trade: holding 10-year bonds and shorting 30-year bonds, betting that the 30-year yield spread over the 10-year yield will widen.

Through the auctions in mid-October, end investors' average allocation shares for 2026 10-year and 30-year Treasury auctions reached record highs of 90.6% and 90.1%, respectively. Increased foreign participation was concentrated mainly in intermediate and longer maturities, leading JPMorgan to infer that the additional demand came more from foreign private investors who prefer longer maturities.
Strong demand does not eliminate the need for price concessions: auction tails have widened across most maturities this year, meaning winning yields have risen further above pre-auction market levels. The bank believes this may reflect private investors being more price-sensitive than official institutions, or greater intraday rate volatility.
The long end is an exception: demand is strong and auction tails have narrowed. Together with the widening financing gap expected over the coming years, JPMorgan believes long-end auction results do not support cutting issuance on the grounds of insufficient demand.