JPMorgan Global Fixed Income Weekly: Finding carry opportunities in curves, swap spreads, and volatility

Overview

This is a JPMorgan weekly report on global fixed income markets, focused on carry opportunities across curves, swap spreads, and volatility. The report notes that a temporary US-Iran MoU and expectations for the reopening of the Strait of Hormuz drove developed-market yields lower early in the week, but subsequent hawkish Fed communication pushed up front-end rates and partially reversed the move. The overall view is that European rates will remain primarily range-bound, and investors should shift from purely directional duration positions toward carry opportunities in curves, swap spreads, volatility, and cross-market relative value.

Core views

The report maintains a view of tactically trading German duration from the long side and prefers adding 10Y German bond exposure when 10Y Bund yields rise back to around 3.10%; it also remains long 10Y Germany versus the US. It stays cautious on intra-EMU and €-SSA spreads, arguing that much of the good news is already priced in and that current spread carry offers insufficient protection against a potential rise in risk aversion. In the portfolio, it continues to hold a long 30Y EU versus swaps position, is short 10Y Italy versus France, and underweights 10Y Belgium versus France/Germany as a hedge against tail risk from renewed Middle East escalation. In derivatives, the report emphasizes paying the belly of 1Yx1Y €STR flies and SONIA flies, entering Bund/Buxl swap spread curve steepeners, and maintaining some volatility curve steepeners and short gamma carry trades. In Japan, it continues to recommend 5s20s JGB steepeners and 5s10s30s JGB body shorts; in Australia, it closes some AUD belly outperformance trades after the RBA pause.

Analysis framework

The report combines central bank meetings, geopolitics, yield ranges, relative valuation, carry and slide, investor positioning, momentum models, supply schedules, and political risk in its analysis. Directional views mainly come from central bank path expectations and fair value models, while relative-value views come from cross-market spreads, curve residuals, risk-adjusted carry, and historical regression relationships; trade selection also incorporates holding-period carry, potential tail risk, and positioning crowding.

Methodology notes

• Macro and central bank reaction functionComparison of central bank meetings and OIS pricing

  Compare JPMorgan’s view on central bank policy paths with market OIS/futures pricing to identify hawkish or dovish mispricing in front-end rates.

  The report compares meeting outcomes and market pricing for the Fed, BoE, Riksbank, Norges Bank, RBA, and BoJ; for example, the market priced in faster and more hikes after the Fed meeting, while the BoE and Riksbank are seen as lacking urgency for immediate action.

• Relative valueFair value models and residual analysis

  Use variables such as yields, money-market expectations, and forecast revision indices to explain cross-market spreads, and judge relative cheapness or richness through residuals.

  The report argues that the US 10Y remains rich versus Germany, supporting a long 10Y Germany versus US trade; it also uses residuals in the credit curves of Italy, Austria, Greece, and others to judge whether curves are too flat or too steep.

• Carry and slideRisk-adjusted carry screening

  Measure compensation from holding positions using 3M carry, slide, and carry adjusted for volatility risk.

  The report believes carry will be the dominant theme in the coming weeks, but that overall protection from current carry in intra-EMU and €-SSA is insufficient; some short-end spreads in France, Spain, and EU versus €STR still offer good absolute and risk-adjusted carry.

• Technicals and positioningMomentum models and client positioning indicators

  Combine momentum signals, client survey positioning, and active bond fund positioning to assess trade crowding and contrarian risk.

  The report notes that developed-market momentum models still show receive/pay rate swap signals, though with less intensity than before; at the curve level they broadly show momentum signals to enter flatteners.

• Volatility strategyInterest rate volatility curves and short-term carry

  Look for opportunities in volatility normalization and in selling high-carry volatility structures through term structure and curve shape.

  The report maintains 2s/10s volatility curve steepeners, 3Mx5Y/1Yx5Y expiry curve steepeners, and continues to hold short unhedged straddles in 3Mx(3Yx1Y).

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• 10Y Germany / Bund duration

  Tactically bullish

  Strengths

  The 10Y Bund remains within a 2.85% to 3.15% range, and yields near 3.10% offer attractive levels to add exposure; the medium-term view on European duration is constructive.

  Weaknesses

  When yields are in the middle of the range, directional duration is less compelling than carry and relative value.

  Comparison

  Relative to US 10Y yields, the report sees Germany as more attractive on valuation.

  Risks

  If an energy shock again pushes up inflation expectations or the ECB path turns more hawkish, German duration could come under pressure.

• 10Y Germany vs. US

  Relative-value long

  Strengths

  The report believes US yields still look rich relative to Germany, and the US team has recently turned more bearish on US duration.

  Weaknesses

  Cross-market trades are jointly affected by USD and EUR policy paths, inflation data, and geopolitical shocks.

  Comparison

  Being long Germany and short the US expresses the relative valuation view better than a simple outright long European duration position.

  Risks

  If US data weaken or the Fed turns dovish again, Treasuries may outperform and weaken this relative-value trade.

• Intra-EMU与€-SSA利差

  Held cautiously, waiting for better carry compensation

  Strengths

  If there are no external shocks over the summer, carry may still support spread stability.

  Weaknesses

  The report believes current valuations are not cheap enough, risk-adjusted carry is insufficient, and investors already hold some overweight positions.

  Comparison

  Short-end France, Spain, and EU versus €STR screen better on carry, but the overall sector is not suitable for indiscriminate adding.

  Risks

  Renewed Middle East escalation, a rebound in energy prices, or political noise could cause spreads to widen again.

• 30Y EU vs. swap

  Continue holding long

  Strengths

  Used to express a strategic overweight in the EU theme and to form a selective allocation alongside cautious intra-EMU positioning.

  Weaknesses

  Long-end assets are sensitive to supply-demand, rate volatility, and curve changes.

  Comparison

  Compared with directly holding multiple peripheral spread positions, 30Y EU vs. swaps provides a more concentrated expression of the EU theme.

  Risks

  If long-end EU supply pressure rises or swap spread technicals reverse, the trade could come under pressure.

• 10Y Italy vs. France

  Short Italy versus France

  Strengths

  The report views it as an efficient carry expression of broader risk aversion and as a hedge against Italian budget-related political noise in the autumn.

  Weaknesses

  Carry on the trade is broadly flat, so it mainly depends on risk aversion or Italian underperformance versus France.

  Comparison

  The report believes Italy should underperform France in a risk-off scenario.

  Risks

  If risk sentiment continues to improve and Italian spreads continue to tighten, this relative short could lose money.

• 10Y Belgium vs. France/Germany fly

  Underweight Belgium as a tail-risk hedge

  Strengths

  Used to hedge the vulnerability of spread portfolios in risk events such as renewed Middle East escalation.

  Weaknesses

  If markets continue to improve in risk sentiment, defensive tail hedges may drag on carry returns.

  Comparison

  Compared with simply reducing intra-EMU exposure, the fly structure is more of a relative-value and hedging expression.

  Risks

  If Belgium’s relative spread tightens for local reasons, the underweight position could come under pressure.

• €STR与SONIA 1Y/1Yx1Y/2Yx1Y fly

  Pay the belly to earn carry and express a short-duration proxy

  Strengths

  The report believes this structure offers attractive 3M carry and expresses upside risk in front-end rates through the curve.

  Weaknesses

  Structured trades are sensitive to curve shape; if central bank paths turn dovish again, paying the belly could suffer.

  Comparison

  Compared with outright paying front-end rates, the fly structure places greater emphasis on carry and curve relative value.

  Risks

  If BoE- or ECB-related pricing is revised down quickly, the trade could generate adverse P&L.

• Bund/Buxl swap spread curve

  Enter swap spread curve steepener

  Strengths

  The report believes technicals support wider Bund spreads, while the curve expression also has carry and fundamental support.

  Weaknesses

  Swap spreads are heavily affected by collateral, supply, balance sheet, and regulatory technical factors.

  Comparison

  Compared with a single-point Bund swap spread trade, the Bund/Buxl steepener focuses more on curve shape.

  Risks

  If long-end supply or changes in swap demand cause unusual moves at the Buxl end, the curve trade may diverge from expectations.

• Interest rate volatility curve

  Maintain volatility curve steepeners and selective short-vol carry

  Strengths

  The report continues to hold 2s/10s volatility curves and 3Mx5Y/1Yx5Y expiry curve steepeners, while collecting carry in some structures.

  Weaknesses

  Short-vol trades carry high risk under central bank surprises, geopolitical shocks, or worsening liquidity.

  Comparison

  Compared with directional duration, volatility curves are better suited to expressing term-structure normalization.

  Risks

  Opaque Fed communication and rising policy uncertainty could push volatility higher and hurt short straddles positions.

• JGB curve

  Continue 5s20s steepeners and 5s10s30s body short

  Strengths

  The report believes the JGB market is mainly driven by supply and demand, with 10-20Y pressured by rising net supply and insufficient duration demand, while 30Y+ is supported by reduced issuance.

  Weaknesses

  BoJ policy and balance sheet timing could still change supply-demand expectations on the curve.

  Comparison

  Compared with outright shorting JGBs, curve trades more directly express supply-demand pressure in the 10-20Y sector.

  Risks

  If long-term investor demand recovers or BoJ purchases provide more support than expected to the long end, the steepener could be hurt.

• AUD与NZD利率

  Close some AUD belly trades while retaining some cross-market and swap spread views

  Strengths

  After the RBA pause, the report believes its hiking cycle is temporarily over and closes prior profitable AUD belly outperformance trades to reduce risk.

  Weaknesses

  Australia and New Zealand rates remain influenced by local inflation and central bank communication, reducing directional conviction.

  Comparison

  Compared with continuing to bet on further surprise RBA tightening, the report prefers selectively retaining cross-market and swap spread trades.

  Risks

  If Australian inflation rises again and the market reprices hikes, the closed trades may miss subsequent gains.

Key data

• Report date2026-06-19Publication date of the global fixed income market weekly report.
• 10Y Bund range2.85%–3.15%The report believes the 10Y Bund yield will continue to trade within this range.
• Reference level for adding German duration~3.10%If the 10Y German yield rises back near this level, the report prefers increasing the overweight.
• BoJ policy rate1.0%The BoJ raised rates by 25bp to 1.0% this week, the highest policy rate since 1995.
• BoE policy rate4.0%The BoE kept rates unchanged with a 7-2 vote split; the report believes the urgency for action has declined.
• RBA policy rate4.35%The RBA paused after three consecutive hikes, and the report believes this hiking cycle is temporarily over.
• Riksbank policy rate1.75%The Riksbank stayed unchanged, and the report pushes back its expected hike from September to December 2026.
• Norges Bank policy rate4.25%Norges Bank stayed unchanged, but its policy path revision was slightly hawkish; the report still expects a September hike.
• Fed market pricingroughly one full hike priced by October, about 38bp by December, and over 40bp by next springAfter the Fed’s hawkish dot plot, OIS forwards repriced materially higher for future hikes.
• Eurozone conventional bond supplyabout €17bnThe report expects about €17bn of conventional bond supply next week, with potential syndications as well.
• Fed 2026 dot plotyear-end median shows a 12.5bp hike, with 6 of 18 dots showing two or more hikesThis is one of the key pieces of evidence behind the report’s view that the Fed meeting delivered the biggest surprise.

Impact & implications

For portfolios, the implication of the report is not to chase risk assets indiscriminately, but to improve carry efficiency in an environment of range-bound rates and diverging central bank paths. European duration can be added on sell-offs, but intra-EMU and €-SSA spreads should not be increased indiscriminately; in derivatives, views are better expressed through curve flies, swap spread curves, and volatility term structures. The Fed’s hawkishness and reduced communication transparency under Warsh may lift USD rate volatility, also making long Germany versus US trades more attractive. Although the Middle East situation has eased temporarily, the durability of any peace agreement remains uncertain, so risk hedging is still necessary.

Risks

• The US-Iran MoU may fail to turn into a durable peace agreement, causing renewed risks in the Strait of Hormuz and higher energy prices.
• If FOMC members continue reinforcing tightening expectations after the Fed’s hawkish stance, USD front-end rates and global rate volatility could move higher still.
• European inflation or energy shocks may exceed expectations, putting pressure on bullish European duration trades.
• Investor positioning in intra-EMU and €-SSA spreads is relatively crowded, and spreads could widen rapidly in a risk-off scenario.
• Political and budget news flow in Italy, France, Belgium, and elsewhere in Europe could alter relative spread performance.
• Short-volatility and carry trades may suffer nonlinear losses in tail events.
• If JGB supply-demand and the BoJ’s bond purchase pace differ from expectations, JGB curve trades may move in the opposite direction.

What to watch

• The follow-up 60-day peace framework talks between the US and Iran, progress on reopening the Strait of Hormuz, and energy prices.
• Subsequent Fed official speeches, interpretation of the dot plot, and repricing in SOFR/OIS for the 2026 hiking path.
• Whether subsequent inflation data and policy paths for the BoE, Riksbank, and Norges Bank validate the report’s expectations for delayed or earlier hikes.
• Whether the 10Y Bund approaches the 2.85% to 3.15% range boundaries, especially whether it rises back toward the roughly 3.10% reference level for adding exposure.
• Changes in risk-adjusted carry, investor positioning, and political risk in intra-EMU and €-SSA spreads.
• The technical impact of about €17bn in European conventional bond supply next week and potential syndications on spreads and swap spreads.
• Supply-demand in long and ultra-long JGBs, the BoJ’s tapering path for bond purchases, and performance differences between the 10-20Y sector and maturities above 30Y.
• Local inflation in AUD and NZD, communication from the RBA and RBNZ, and changes in carry for Australia-New Zealand cross-market rate trades.