JPMorgan expects the high-rate environment to persist, favoring short US Treasuries, long USD, and EM FX

Overview

This is a global macro strategy outlook published by JPMorgan on June 15, 2026, covering US rates, international rates, commodities, FX, and emerging markets. The core view is that inflation remains elevated, growth retains resilience, and major central banks are likely to pursue a gradual and shallow tightening path, while the market is generally pricing a more aggressive tightening cycle than JPMorgan forecasts. In this backdrop, US Treasury valuations remain unattractive relative to other developed-market government bonds, and long-end yields may stay anchored at elevated levels due to fiscal supply, changing demand structure, and a Fed that stays on hold.

Core views

The report holds a moderately bearish view on US rates, expecting 2-year and 10-year Treasury yields to reach 4.20% and 4.70% by end-2026, respectively, and argues that curve flatteners are preferable to outright short duration positions. For international rates, euro area and UK rates are seen as more likely to trade in ranges, with a strategic bias toward adding duration when valuations approach the upper end of the energy-shock scenario range, while retaining a long position in 10-year German Bunds relative to US Treasuries. In FX, the report remains bullish on the US dollar and carry trades, arguing that the dollar typically has around 5% appreciation potential before the first Fed hike. In emerging markets, lower fundamental vulnerability and proactive rate hikes by some central banks support carry performance, leading to an upgrade of EM FX from MW to OW, while EM rates and credit remain at MW. In commodities, the report emphasizes that oil flows through the Strait of Hormuz have recovered but remain below pre-war levels, European natural gas inventories are tight, the hidden deficit in the aluminum market will gradually become visible, and the US-China agricultural agreement brings at least $17 billion of annual commitments for US agricultural purchases.

Analysis framework

The report uses a cross-asset top-down strategy framework, combining central bank policy expectations, OIS forward pricing, yield curve valuation, fiscal financing needs, investor demand structure, energy shock scenarios, real yields, and historical hiking-cycle experience to form allocation recommendations across rates, FX, commodities, and emerging markets. The US rates section especially emphasizes relative value: comparing US Treasury and German Bund valuations, using regression models to assess curve slope, and explaining why long-end yields may remain elevated through fiscal deficits and investor absorption capacity.

Methodology notes

• Rates strategyOIS policy expectations versus central bank forecasts

  Compare the gap between market-implied hiking paths and JPMorgan's own central bank forecasts.

  The report points out that OIS forwards already price in an earlier and more aggressive Fed hiking path, while JPMorgan expects the Fed to remain on hold throughout 2026 and possibly not hike until 3Q27; this divergence supports an upward-sloping yield curve and keeps Treasury yields elevated.

• Yield curve valuationUS Treasury curve regression fair-value model

  Use 1y1y OIS, 5y5y TIPS breakeven inflation, a trade-policy uncertainty dummy variable, and the Fed balance sheet as a share of GDP to explain the US Treasury curve.

  The model shows that most curve combinations remain steep after controlling for fundamentals, with the 10s/30s curve around 14bp too steep, close to 2 standard deviations; therefore, the report argues that curve flatteners offer better risk-reward than outright short duration positions.

• Fiscal and supply-demandUS Treasury net issuance and investor demand balance

  Assess supply absorption pressure by combining fiscal deficits, bill and coupon issuance, foreign demand, bank demand, fund inflows, and LDI demand.

  The report lowers its forecasts for foreign and commercial bank demand for US Treasuries, and estimates that if its assumptions hold, other investors will need to absorb an additional $543 billion of Treasury supply, making it easier for intermediate- and long-term yields to remain at high levels.

• FX strategyFed hiking cycles and historical US dollar performance

  Examine the historical performance of the US dollar, FX carry, and volatility before and after the first rate hike.

  The report argues that historically, the broad US dollar typically appreciates by about 5% from roughly six months before the first Fed hike to about one month after it, while FX carry has not been hurt in the early phase of tightening and has often benefited instead; therefore, it remains bullish on the US dollar and carry trades.

Asset mapping & comparison

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

• US Treasuries

  Core short-duration and relative-value asset.

  Strengths

  Upside in yields comes from hawkish policy expectations, fiscal supply, slowing foreign and bank demand, and the need for more price-sensitive investors to absorb supply.

  Weaknesses

  If the Treasury delays changes to issuance guidance, energy prices fall, or growth weakens significantly, upside in yields may be limited.

  Comparison

  Valuations are unattractive relative to German Bunds, and the report recommends selling 10-year UST versus Bund.

  Risks

  An unexpected dovish Fed turn, unchanged Treasury issuance guidance, rising safe-haven demand, or a rapid decline in inflation.

• German Bunds and euro area rates

  Preferred relative to the US and serve as the long leg in cross-market trades.

  Strengths

  The 10-year Bund is expected to trade in a 2.85%-3.15% range, with valuations more attractive than in the US, allowing a duration-long bias near the upper end of the range.

  Weaknesses

  European growth may be dragged down by the energy shock, and range-break risks remain.

  Comparison

  The report maintains a long Germany versus US position in 10-year bonds, and stays cautious on intra-EMU and €-SSA spreads.

  Risks

  Escalation of the Middle East conflict, renewed energy price increases, euro area political risks, or fiscal risk spillovers.

• UK rates

  Range trading and tactical OIS paying.

  Strengths

  The BoE is expected to keep rates unchanged at 3.75% in June, but some members may support a 25bp hike, supporting tactical paying in Sep26 MPC OIS.

  Weaknesses

  Lagged macro shocks may start to appear, and market optimism about a US-Iran agreement may limit further downside in rates.

  Comparison

  The report recommends selling Jun27 3M SONIA futures versus Jun27 Euribor as a low-beta proxy for being short SONIA.

  Risks

  UK political events, easing energy shocks, or an unexpectedly dovish BoE voting split.

• US dollar and G10 FX

  Remain bullish on the US dollar and carry trades.

  Strengths

  US real yields, cyclical resilience, and historical patterns ahead of the first rate hike support the dollar; preferred expressions include USD versus EUR and CAD, as well as DM carry currencies such as AUD and NOK.

  Weaknesses

  If energy prices normalize and improve real yields elsewhere, or if the market prices in an Iran deal early, the dollar may face temporary pressure.

  Comparison

  The report argues that the dollar still trades at a discount to rate-implied fair value.

  Risks

  The Fed fails to turn more hawkish as the market expects, US data weakens, or a deterioration in risk appetite triggers carry drawdowns.

• Emerging market FX and credit

  EM FX upgraded to OW, while EM rates, sovereign credit, and corporate credit remain at MW.

  Strengths

  The cyclical backdrop remains resilient, fundamental vulnerability is low, and proactive rate hikes by some EM central banks support carry performance.

  Weaknesses

  Credit spreads are already tight, leaving valuation risk-reward less compelling.

  Comparison

  Relative to credit and rates, the report prefers high-yield EM FX and frontier-market FX.

  Risks

  A global growth shock, a more hawkish Fed, an overly strong dollar, or rising geopolitical risk.

• Commodities: energy, aluminum, and agriculture

  Energy shocks and supply-demand gaps affect inflation, rates, and FX.

  Strengths

  Hormuz oil flows have recovered but remain low, European natural gas inventories are at seasonally low levels, aluminum's hidden shortage may become explicit, and the US-China agricultural agreement supports purchases.

  Weaknesses

  Policy intervention, easing geopolitical tensions, or supply recovery could compress price risk premia.

  Comparison

  Commodity factors are used as important macro inputs for rates and FX strategy, rather than as a single directional commodity rating.

  Risks

  The pace of reopening in the Strait of Hormuz, policy intervention in European natural gas, and uncertainty around implementation of US and China trade commitments.

Key data

• Report date2026-06-15Report date of the Global Markets Strategy report.
• US GDP forecast2026 q4/q4 growth of 2.0%The report believes the US cyclical backdrop remains resilient.
• Core PCE forecast3.4% in 2026 q4/q4Inflation remains high, an important constraint preventing the Fed from turning dovish quickly.
• Unemployment rate forecastFalls to 4.1% in 4Q26Labor market resilience raises questions about whether current policy is truly restrictive.
• Fed policy pathOn hold throughout 2026, possible rate hike in 3Q27Market OIS pricing is more hawkish than JPMorgan's forecast.
• 2-year Treasury yield forecast4.20% at end-2026, 4.30% in 2Q27Front-end yields are supported by policy expectations and persistent inflation.
• 10-year Treasury yield forecast4.70% at end-2026, 4.75% in 2Q27The long end remains elevated due to valuation, fiscal supply, and demand structure.
• Treasury curve signal10s/30s around 14bp too steepThe report recommends expressing a moderately bearish rates view through a 10s/30s flattener.
• FY26 US deficit forecast$2.020tnRevised up from the start-of-year estimate, reflecting faster tariff refunds and slower tariff revenue accumulation.
• FY27 US deficit forecast$1.960tnThe fiscal gap becomes more pronounced in FY27 and beyond.
• Tariff refund forecast$75bn in FY26 and $50bn in FY27IEEPA tariff refunds are proceeding faster than previously expected.
• FY26 tariff revenue forecast$325bnThe report expects the FY27 pace to recover to $400bn.
• Net privately held coupon issuance$1.293tnNet privately held amount after deducting Fed purchases and buybacks.
• Additional Treasury supply absorption needed$543bnAdditional supply that other investors would need to absorb if demand forecasts materialize.
• 10-year Bund range2.85%-3.15%The report recommends trading tactically from the long side within this range.
• 10-year Gilt range4.65%-5.20%UK rates are expected to trade around the range implied by the Strait of Hormuz standoff scenario.
• Hormuz oil flows5.1 mbd in June, about 25% of pre-war levelsRecovered versus March to May, but still significantly below pre-war levels.
• Historical US dollar performanceAbout 5% appreciation around the first rate hikeThe statistical window spans roughly six months before the first hike to about one month after it.
• EM FX rating changeUpgraded from MW to OWKey preferences are high-yield currencies, currencies whose central banks are preparing to hike, and frontier-market FX.

Impact & implications

For portfolios, the report recommends avoiding a simple bet on rapid rate cuts or a sharp rebound in long duration under a high-rate and inflation-resilient backdrop; a better expression is to use relative-value and curve-structure trades to control directional risk, such as short 10-year UST versus Bund, long US Treasury 10s/30s flatteners, and tactically adding duration near the upper end of rate ranges in the euro area and the UK. In FX allocation, if US real yields and cyclical advantages persist, the dollar may continue to be supported, while global FX carry can also keep benefiting. In emerging market assets, the opportunities are more concentrated in high-yield and policy-proactive currencies, while credit spreads are already tight, warranting caution over growth shocks.

Risks

• If the Middle East conflict and the Strait of Hormuz standoff worsen, energy prices could rise further and alter inflation and central bank reaction functions.
• If US growth weakens materially, the market may reprice the rate-cut path, putting pressure on Treasury shorts and dollar longs.
• If inflation proves stickier than expected or central banks turn more hawkish, global risk assets and EM credit may come under pressure.
• If the US Treasury delays changes to issuance guidance, increased coupon issuance may be pushed to a later stage in 2027, affecting the pace of Treasury supply.
• If foreign investors and commercial banks reduce Treasury demand further, long-end yields could rise above expectations.
• If the dollar weakens due to an Iran deal, lower energy prices, or improved real yields elsewhere, FX carry and USD long portfolios may retrace.
• EM credit spreads are tight, and if a growth shock emerges, the risk-reward in credit assets could deteriorate rapidly.

What to watch

• Chair Warsh's first FOMC, the 2027 dot plot, and the wording of the press conference.
• US employment, core PCE, and changes in real yields to judge whether the Fed may turn more hawkish earlier.
• Whether the US Treasury removes the phrase 'at least' from issuance guidance in August, and whether coupon auction sizes are raised in February 2027.
• Changes in actual demand for US Treasuries from foreign investors, commercial banks, bond funds, and LDI.
• Hormuz oil flows, European natural gas inventories, the TTF-JKM spread, and policy intervention risk.
• Meetings of the BoE, BoJ, Norges Bank, Riksbank, and other central banks, and their relative policy divergence.
• The dollar's rate-implied fair value, real yield differentials, and global FX carry performance.
• EM central banks' willingness to hike, signs of growth shocks, and whether EM credit spreads remain tight.
• Implementation of the US-China agricultural purchasing agreement and its impact on soybean and agricultural trade flows.