Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income

srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy

J.P. Morgan Securities LLC J.P. Morgan Securities LLC
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

Interest Rate Derivatives

False Fall
• The commencing of rate cuts next month is all but certain, but there is considerable
uncertainty around pace. Uncertainty surrounding pace is apparent in option-implied
probability distributions, and supported by the tone of recent Fed-speak. Such uncer-
tainty is likely to amplify the sensitivity of yield levels to Fed-speak and/or economic
data, making it a key support for jump risk and elevated realized volatility, and is signifi-
cant enough to warrant a bullish stance on short-expiry swaption volatility despite seem-
ingly rich valuations, in our view
• SOFR and GC rates are normalizing, but front end spreads remain far too narrow.
Beyond valuations, one near term catalyst for a correction is likely to come in early
September as T-bill net issuance turns negative
• Term funding premium remains narrow relative to fair value, and thus appears biased
higher in the near term (due to a correction) as well as the longer term (due to a falling
share of price-insensitive UST buyers and eventually higher duration supply). Together
with the cheapness of zero-duration spreads, this argues for a flatter spread curve - posi-
tion for a flatter 5s/30s maturity matched swap spread curve
• Adjusted for the broader term structure, swap spreads appear too wide in the 7-year
sector and too narrow in the 20-year sector - initiate 7s/20s swap spread curve steepening
exposure, weighted to hedge exposure to rising term funding premium
• We examine the near term and medium Fed expectations that are currently being priced
into the swap yield curve. Currently, yield curves anchored in the front end, such as the
2s/5s curve, are fully priced to our Funds rate forecast, while forward OIS rates them-
selves appear high. This suggests that on a relative basis, outright longs at the front end
are preferable to front end curve steepeners
• In contrast, the Fronts/Reds curve does indeed appear fairly priced to our Fed funds
forecast, but forward swap curves and back-end spot curves are too flat and therefore
underpricing medium term fed expectations. This makes steepeners in these sectors
preferable to outright longs in the Reds and/or Fronts/Reds flatteners on a comparative
basis

False Fall
New Yorkers are accustomed to many additional seasons on the calendar, one of which is
colloquially referred to as "False Fall". Not quite Fall, and not quite Summer, it is a cuspy
time when the temperature seems to fluctuate between the two. The US Rates markets
appear to be experiencing their own False Fall, with front end yields falling initially, bounc-
ing higher on Thursday and then back lower on Friday. All in all, forward OIS as of mid-2025
traded this week in a ~20bp range and 2- to 5-year yields traded in a ~15bp range, before
finishing near the low end of the range (Figure 1).

1
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC Interest Rate Derivatives
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

Figure 1: Swap yields were lower this week on the back of weaker data and a dovish tilt in the FOMC
minutes
Selected statistics for SOFR swap yields, YE24 OIS, and 1H25 OIS, 8/16/2024 - 8/23/2024; %
Start Change End Min Mean Max Range
2Y 3.87 -0.17 3.70 3.70 3.79 3.87 0.17
3Y 3.65 -0.16 3.49 3.49 3.57 3.65 0.16
5Y 3.48 -0.13 3.35 3.34 3.41 3.48 0.13
7Y 3.44 -0.11 3.33 3.32 3.38 3.44 0.12
10Y 3.45 -0.08 3.37 3.34 3.39 3.45 0.11
20Y 3.50 -0.06 3.44 3.39 3.45 3.50 0.10
30Y 3.35 -0.04 3.30 3.25 3.30 3.35 0.10
YE24 OIS 4.38 -0.09 4.29 4.28 4.34 4.39 0.12
1H25 OIS 3.58 -0.18 3.40 3.39 3.49 3.58 0.18
Source: J.P. Morgan.

The catalysts for the decline in yields were many - weak Canadian CPI helped spark the
initial move lower, but there were other factors as well. Benchmark revisions to the estab-
lishment survey were weaker (-818K) than our expectations (-360K), the FOMC minutes
were more dovish than expected especially considering that the meeting took place before
the last employment report, and Fed Chair Powell's comments were quite dovish on Friday.
But this week was also a reminder of the significant policy uncertainty that continues to
permeate the market. As of this writing, markets are pricing in about 100bp of easing by year
end. But although there is consensus among Fed speakers that policy is restrictive and easing
is now appropriate, there is not yet an obvious consensus on pace. As seen in Figure 2,
several speakers appear to be leaning against expectations for 50bp cuts. In other words, the
pace of cuts remains undecided, and options markets reflect that. Our favorite metric for
policy uncertainty is based on inferring an implied probability distribution from the prices
of calls and puts on Z4 (and/or M5) SOFR futures, and then de-constructing those implied
distributions into "weights" associated with each policy outcome. Since the weights must
sum to one by design, this provides an intuitive way to "read" the information in the tails
of the distribution. The point of this exercise is to see if the forwards (which represent an
average across outcomes) are averaging across a relatively narrow (indicating policy clari-
ty) or a relatively wide (indicating policy uncertainty) range of policy scenarios. As we can
see, the weights on deep cut scenarios are reasonably comparable to the weights on
shallow cut scenarios, which suggests that dispersion remains wide and there is more
uncertainty around outcomes even at a horizon that is only four months into the future
(Figure 3).

2
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

Figure 2: Several Fed speakers appear to be leaning against expecting Figure 3: Policy uncertainty remains elevated, even at a horizon that is only
more aggressive rate cuts four months into the future
Selected Fed-speak excerpts, 8/22/2024 - 8/23/2024 Total weights on year-end policy rate scenarios representing 1 hike, Shallow Cuts*, and
Deep Cuts*, as calculated from a decomposition of the implied probability distribution
associated with Dec 2024 SOFR futures**; Feb 2024 – Current
Date Fed Speakers Comments
‘The Time Has Come’ for Interest Rate Cuts,Current rate level gives ample room to respond to risks, Timing, pace of cuts to
8/23/2024 Powell, v depend on data, outlook, risks, Inflation risks have diminished, labor risks increased 1.0
Current data don’t make the case for a larger, 50-basis-point cut, Whether the Fed cuts by 25 or 50 basis points is not the
biggest issue for them, The pace and the magnitude of the easing cycle are going to depend on how the economy evolves,
Starting with a 50 basis point cut could mean markets then expect even more easing going forward, Being steady, thinking
8/23/2024 Mester, nv about what the right pace is geared to how the economy is working and evolving is the right way to go 0.8
Next step on rates depends on the next data points, Payroll revision didn't really change jobs view much, Inflation came
down more than expected, May make sense to pull forward my view on rate cuts, Inflation dashboard is 'still flashing red',
8/23/2024 Bostic, v Inflation 'is not particularly close' to Fed target
Data gives me more confidence that we're on path to 2% inflation, Labor market is `healthy,' want to preserve it, See 0.6
8/22/2024 Collins, nv recalibrating policy at “a gradual, methodical pace”
Need to start process of lowering rates in September, Latest jobs report bit lower than expected, not a lot, See 'high level' job
8/22/2024 Harker, nv market softening, On board with September cut if data is as expected, Slow, methodical approach to cuts is way to go
8/22/2024 Schmid, nv Need to see more data before supporting rate cut 0.4

0.2

0.0
Feb 24 Mar 24 Apr 24 May 24 May 24 Jun 24 Jul 24
Source: J.P. Morgan., Bloomberg Finance L.P. Source: J.P. Morgan., CME
* Shallow Cuts correspond to the total weights on the 0 Cut,1 Cut, 2 Cuts, and 3 Cuts scenarios. Deep
Cuts correspond to the total weights on the >3 Cuts scenarios. Scenarios outlined in Figure 2 of What’s
the rush?.
** We enumerate a list of scenario-specific Normal distributions with fixed standard deviations and
means that are separated by 25bp, and then require the implied distribution to be a weighted combina-
tion of these individual distributions. The weights are then solved for, by fitting to the observed prices
of calls and puts at various different strikes. For more details of our approach, see What’s the rush?

Therefore, it appears likely that policy uncertainty will continue to haunt markets until at
least next Payrolls, which will be critical in anchoring expectations. Despite the near cer-
tainty of a cut in September, the pace and extent of easing remain uncertain, which likely
means that yields will be highly sensitive to new economic or policy information that arises
in coming weeks. Indeed, the evidence supports the notion that yields are much more
sensitive to Fed-speak in periods of significant policy uncertainty. To see this, we turn
to our long-standing "Fed-speak Index", which is constructed by (i) manually identifying
key Fed-speak events, and (ii) recording the 15-minute change in 5Y UST yields following
the start of the speech, and then (iii) accumulating this change in a cumulative index. This
index is designed to convey a sense of direction - i.e., is Fed-speak leaning dovish or hawk-
ish. But we can examine the magnitude of changes in this cumulative index on days where
there was a Fed-speak event, grouped by periods of policy clarity versus policy uncertainty
over the past six months. We do this in Figure 4, where we show percentile moves in each
type of period. For instance, 90% of Fed-speak events produced a change of ~2.8bp or less
in periods of policy clarity, but during periods of policy uncertainty the moves were larger
and the 90th percentile move is over 5bp. In other words, the current backdrop of policy
uncertainty will likely serve to amplify the effect of new information, whether from Fed-
speak or from economic data.

We see such a backdrop as conducive to jump risk and supportive of elevated realized
volatility in rates. This is quite evident when we look at a decomposition of month-to-date
delta hedged returns from long straddle positions in various sectors. As seen in Figure 5,
long volatility positions were not just profitable overall, but the portion attributable to deliv-
ered volatility (i.e., gamma P/L net of theta) was a significant fraction of the overall return.
Thus, policy uncertainty has very tangible consequences and will likely continue to be sup-
portive of a bullish view on volatility. Of course, one must always consider whether current
valuations are rich enough to offset the above mentioned supportive factors. In this regard,

3
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC Interest Rate Derivatives
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

little has changed from last week. Specifically, in our publication last week (see Hopscotch,
8/16/2024), we examined whether policy uncertainty was significant enough to support a
bullish view on volatility despite the fact that our implied volatility fair value models (which
do not explicitly incorporate policy uncertainty) pointed to valuations being rich. We
addressed this question by building an empirical model for delta hedged returns on volatility
positions that explicitly incorporated a measure of policy uncertainty as well as the residual
from our implied volatility fair value model. The conclusion then was that policy uncertain-
ty's impact would likely be sufficient to significantly offset the effect of rich valuations,
resulting in relatively low carry costs on delta hedged long vol positions. This remains true
currently as well. Given this, and given the potential for significant jump risk going into
Payrolls and beyond, we remain bullish on volatility in short expiries.

Figure 4: As one might expect, yields have tended to be much more Figure 5: Long gamma positions have been profitable so far this month,
sensitive to Fed-speak in periods of significant policy uncertainty as policy uncertainty helped keep delivered volatility elevated
Size of the Nth percentile absolute change in the Fed sentiment index* on days with one P/L from daily delta-hedged long straddles † between 8/1 and 8/22 , estimated vega P/L*,
or more Fed-speak events, grouped by policy clarity or uncertainty regime**, for various gamma P/L** and theta P/L*** for the period; bp/notional
selected values of N from 10 to 90. Past 6 months; bp
P/L Attribution
6 Gamma + Theta P/L
5 Gamma +
Structure Actual P/L Vega P/L Gamma Theta Theta Other P/L
4 6Mx2Y 17.7 9.7 24.3 -8.6 15.7 -7.7
6Mx5Y 20.8 13.8 33.4 -19.1 14.3 -7.3
3 6Mx10Y 28.9 20.0 55.0 -33.7 21.3 -12.5
6Mx30Y 59.9 39.1 107.9 -68.2 39.6 -18.8
2
1Yx2Y 9.0 5.3 13.5 -5.5 8.0 -4.2
1 1Yx5Y 12.2 7.3 21.3 -12.7 8.6 -3.7
1Yx10Y 18.2 12.1 34.8 -22.7 12.1 -5.9
0 1Yx30Y 45.8 30.0 71.8 -45.4 26.5 -10.7
10% 20% 30% 40% 50% 60% 70% 80% 90%
Source: J.P. Morgan, Bloomberg Finance, L.P. Source: J.P. Morgan.
* The Fed sentiment index is computed as the cumulative sum of yield changes in 5-year note Treasury † Assumed to be delta hedged daily, options are rolled on a monthly basis, assumes no transaction
futures in the 15-minute period following the first Fedspeak headline on Bloomberg. Fedspeak is costs
defined as any speech, FOMC meeting or FOMC minutes. * Vega P/L is estimated as inception vega times change in implied vol (starting implied vol minus aged
** Days on which the absolute difference between the total weight on deep cut scenarios and shallow implied vol on end date)
cut scenarios was between 0.25 and 0.75 are classified as days characterized by Policy Uncertainty, ** Gamma P/L is estimated average gamma x 0.5 x monthly realized volatility x 17 (to represent the
while all other days are deemed to have Policy Clarity. For more details see Figure 3 time period)
*** Theta P/L is estimated as spot premium minus aged premium at inception

Swap spreads
Swap spreads were once again narrower this week in the front end and the belly of the curve,
while remaining flat to slightly wider in longer maturities (Figure 6). These moves came
despite a ~5bp decline in O/N GC repo rates and a modest decline in SOFR, suggesting that
stressed financing conditions were likely not the main driver behind the narrowing in front
end spreads.

Looking ahead, we expect SOFR and GC repo rates to remain in check in the near term,
which in turn should help support a normalization in front end spreads. But the catalyst that
will likely help spur such a normalization is likely to be a turn in T-bill issuance. As seen
in Figure 7, the cheapening in zero-duration spreads has coincided with the surge in T-bill
supply, but this should reverse as T-bill net issuance turns negative in September. (A quick
note - on any given day, we can regress maturity matched swap spreads in all the benchmark
tenors versus modified duration of the corresponding bonds. We define zero-duration-

4
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

spreads as the intercept from this regression, and we define term funding premium as the
negative of the slope. Viewing swap spreads through the lens of these two summary metrics
of the term structure offers many advantages. For more details, see Term Funding Premium
and the Term Structure of SOFR Swap Spreads).

Figure 6: Swap spreads were narrower this week in the front end and the Figure 7: The cheapening in zero-duration spreads has coincided with the
belly, and modestly wider in longer maturities surge in T-bill supply
Selected statistics for maturity matched SOFR swap spreads, 8/16 - 8/23; bp 6 week change in T-bill supply (%, left) and 6 week moving average of the residual** from
our fair value model for zero-duration swap spreads* (right, inv., bp)
Start Change End Min Mean Max
5 -8
2Y -17.9 -0.8 -18.7 -19.6 -18.7 -17.9 -7
4
3Y -21.9 -1.4 -23.3 -23.5 -22.9 -21.9 -6
3
5Y -28.9 -1.3 -30.1 -30.1 -29.5 -28.9 -5
7Y -36.5 -0.9 -37.3 -37.3 -36.8 -36.3 2 -4
10Y -44.0 0.0 -44.0 -44.6 -44.1 -43.8 1 -3
20Y -75.9 0.8 -75.0 -76.9 -75.9 -75.0 0 -2
30Y -80.5 0.4 -80.1 -81.1 -80.6 -80.1 -1
-1
0
-2 1
-3 2
18-May 7-Jun 27-Jun 17-Jul 6-Aug 26-Aug
Source: J.P. Morgan. Source: J.P. Morgan.
* For details on our methodology for calculating Zero-duration swap spreads, see Term Funding Premium
and the Term Structure of SOFR Swap Spreads
** For details on our fair value framework for zero-duration swap spreads, see Interest Rate Derivatives
2024 Mid-Year Outlook

Term funding premium also appears too low relative to fair value, to the tune of ~0.3bp/year,
as seen in Figure 8. Moreover, not only is term funding premium likely biased higher in the
near term because of this mispricing, it is also likely biased higher in the longer term because
of structural reasons (the falling share of price-insensitive investors in the UST market, and
eventually higher duration supply). Taken together, this expectation of higher zero-dura-
tion swap spreads as well as higher term funding premium points to wider swap
spreads at the front end as well as a flatter spread curve. Therefore, we now recommend
initiating exposure to a flatter 5s/30s swap spread curve (see Trade recommendations).

Finally, it is worth noting that when we look at swap spreads in each sector in relation to
the term structure (i.e., if we assume no changes to term funding premium or to zero-dura-
tion swap spreads), we still find that (i) front end swap spreads in the 2- to 5-year sector
are currently trading too narrow relative to the term structure, while (ii) longer matu-
rity swap spreads in the 7- to 30-year sector are trading too wide, but (iii) with the
exception of 20-year swap spreads which appear too narrow relative to the term struc-
ture (Figure 9). Therefore, as a relative value trade, we recommend a weighted 7s/20s
maturity matched swap spread curve steepener where the weighting is designed to
hedge against a broader rise in term funding premium (which would flatten the overall
spread curve - see Trade recommendations).

5
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC Interest Rate Derivatives
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

Figure 8: The residual from our Term Funding Premium model has been Figure 9: Front end swap spreads are currently trading too narrow relative
fairly mean-reverting and currently appears too narrow to the term structure, while longer maturity swap spreads (with the
Residual from a regression of term funding premium* versus its drivers**, past 1 year; exception of the 20-year sector) are trading too wide
bp/year Residual from our fair value model* for maturity matched swap spreads, 8/22/2024; bp

0.6 4

0.4 3

0.2 2

0.0 1

-0.2 0

-0.4 -1

-0.6 -2

-0.8 -3
Aug 23 Oct 23 Dec 23 Feb 24 Apr 24 Jun 24 Aug 24 2Y 3Y 5Y 7Y 10Y 20Y 30Y
Source: J.P. Morgan. Source: J.P. Morgan.
* For details on our methodology for calculating Term funding premium, see Term Funding Premium * Fair values are computed by adding our Term structure baseline swap spread values and our swap
and the Term Structure of SOFR Swap Spreads spread deviation relative to the term structure of swap spreads across each sector (see Term Funding
** For details on our fair value framework for term funding premium, see Interest Rate Derivatives 2024 Premium and the Term Structure of SOFR Swap Spreads for details)
Mid-Year Outlook

Swap Yield Curve

The swap yield curve steepened this week as yields headed lower, with almost every sector
of the curve now steeper relative to week-ago levels. The exception was the very front end,
where the 1s/2s curve flattened modestly to the tune of 1bp (Figure 10).

Figure 10: Swap yield curves steepened in most sectors this week
Selected statistics for benchmark swap yield curves, 8/16/2024 - 8/23/2024; bp
start chg end min mean median max
1s/2s -52.4 -1.1 -53.6 -53.8 -53.1 -53.1 -52.4
2s/3s -22.3 1.0 -21.3 -22.7 -21.9 -21.9 -21.3
2s/5s -39.3 3.7 -35.6 -40.0 -37.9 -37.9 -35.6
2s/10s -41.9 8.1 -33.7 -44.3 -39.5 -39.6 -33.7
5s/10s -2.5 4.4 1.9 -4.2 -1.6 -1.6 1.9
5s/30s -13.1 8.4 -4.8 -16.0 -11.4 -11.5 -4.8
10s/20s 4.6 2.8 7.4 3.8 5.2 5.1 7.4
10s/30s -10.6 3.9 -6.7 -11.7 -9.8 -9.9 -6.7
Source: J.P. Morgan.

Our approach to explaining swap yield curve movements and taking curve views has been
centered around our swap curve fair value model, which uses 5 different factors (plus a
control variable to account for historical periods when the Fed has employed policy guid-
ance as a monetary policy tool) to explain a variety of spot and forward swap curves. These
factors include the short rate (3Mx3M forward OIS), medium term policy expectations
(3Mx3M / 15Mx3M OIS curve), the size of the Fed balance sheet, and short term as well
as long term inflation expectations. As we have noted (see our 2024 Mid-Year Outlook),
such a model has been fairly effective in explaining moves in various spot as well as forward

6
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

swap curves.

In the current context, the most important factors are the first two, which capture the
near term as well as the medium term outlook for policy rates, but we include a full set
of coefficients in Figure 11. As our economists have noted, most recently on Friday (see
Cuts are coming, M. Feroli, 8/23/2024), we expect the Fed to cut rates by 50bp at the next
two meetings, followed by 25bp cuts thereafter until we get to a 3% level in the second half
of next year. If we assume this forecast will be realized, we arrive at a fair value of around
4.1% for the 3Mx3M OIS rate, and a fair value of -125bp for the 3Mx3M / 15Mx3M forward
OIS curve. This compares with the market's pricing of 4.3% and -120bp respectively for
these two factors. In other words, the 3Mx3M / 15Mx3M forward OIS curve is fairly priced
relative to our forecast for policy rates, but there is room for OIS rates at the very front end
to decline from current levels if our funds rate projections are realized.

Figure 11: Our empirical fair value model uses a handful of factors to explain a variety of different spot
and forward yield curves, but fed expectations - both near term and medium term - are currently the most
important ones
Statistics from regressing* various spot and forward curves against 7 drivers**, R-squared, Standard error, current yield curve
level, and current fair value; current value as of 8/22/2024
Coefficients Model Stats Curve Actuals / FV
Fed Expec. 5Yx5Y Infl.
Curve Intercept Guidance 3Mx3M OIS Fed B/S 2Y Infl. swap Intercept shift Rsq Std. Err. Cur. Curve Fair Value
Crv swap
2s/5s -1.08 -0.04 -0.27 0.05 -0.03 0.91 -0.12 0.15 0.96 0.10 -0.38 -0.46
2s/10s -1.64 -0.07 -0.50 -0.15 -0.04 1.53 -0.21 0.22 0.95 0.17 -0.39 -0.47
2s/30s -1.65 -0.11 -0.73 -0.41 -0.07 1.90 -0.25 0.27 0.95 0.21 -0.50 -0.55
5s/10s -0.56 -0.03 -0.23 -0.20 -0.01 0.62 -0.09 0.07 0.91 0.08 -0.01 -0.02
5s/30s -0.56 -0.07 -0.46 -0.46 -0.04 0.99 -0.12 0.12 0.93 0.14 -0.11 -0.09
10s/30s 0.00 -0.04 -0.23 -0.27 -0.03 0.37 -0.03 0.05 0.94 0.07 -0.10 -0.07
2Y fwd 2s/5s -0.45 -0.02 -0.17 -0.24 0.00 0.45 -0.07 0.02 0.80 0.08 0.09 0.10
2Y fwd 2s/10s -0.52 -0.04 -0.28 -0.43 0.00 0.68 -0.10 0.02 0.80 0.13 0.22 0.25
2Y fwd 2s/30s -0.23 -0.06 -0.42 -0.65 -0.03 0.77 -0.10 0.04 0.87 0.16 0.09 0.16
2Y fwd 5s/10s -0.07 -0.02 -0.11 -0.19 0.00 0.23 -0.03 0.00 0.75 0.06 0.14 0.15
2Y fwd 5s/30s 0.22 -0.04 -0.26 -0.41 -0.04 0.32 -0.02 0.01 0.87 0.10 0.00 0.06
2Y fwd 10s/30s 0.29 -0.02 -0.14 -0.21 -0.04 0.09 0.01 0.01 0.92 0.05 -0.13 -0.09

Source: J.P. Morgan., Federal Reserve H.4.

* Regression from June 2014 to June 2024
** Underlying drivers are: Forward Guidance (number of years of forward policy commitment by the Fed), 3Mx3M OIS rate (%), Fed expectations
curve (15Mx3M - 3Mx3M OIS curve as a proxy), size of the Fed balance sheet ($tn), 5Yx5Y inflation swap yield (%), 2Y inflation swap yield
(%), intercept shift (0s before 11/1/2023, 1s after)

But we can use this empirical model to also ask what values for these important drivers
are being priced into the swap yield curve. Said differently, if we take our empirical swap
yield curve fair value model coefficients as a given, we can ask - what values for the 3Mx3M
OIS rate and the 3Mx3M / 15Mx3M forward OIS curve would cause current swap yield
curves to look fair. In order to avoid assuming a beta between the 3Mx3M rate and
3Mx3M/15Mx3M curve, we answer this question in two stages. First we choose swap
curves that have significant coefficients with respect to the 3Mx3M rate, but do not have
numerically significant exposure to the forward OIS curve. Two such examples are the 2s/5s
and 2s/7s spot swap curves. From each of these, we can calculate the level of 3Mx3M OIS
that would cause these swap curves to appear fair at the current levels. We walk through this
process in Figure 12 - as can be seen, it would appear that swap yield curves are currently
priced to a forward OIS of ~4.15%. This is quite close to levels that would be consistent with
our own Fed forecast, but a good ~15bp lower than the current 3Mx3M forward OIS yield.
This leads us to our first observation - on a relative basis, outright longs at the very front
end are likely more attractive than front end swap curve steepeners, as these swap
curves are already priced to more aggressive easing expectations than forward OIS rates
themselves.

7
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC Interest Rate Derivatives
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

Next, armed with an estimate for the "implied" 3Mx3M OIS rate that swap curves are pric-
ing in, we turn our attention to medium term Fed expectations (i.e., the 3Mx3M / 15Mx3M
curve). To calculate the implied value for medium term Fed expectations that swap yield
curves are currently pricing in, we turn to a different set of curves that have numerically
significant exposure to medium term Fed expectations but not to 3Mx3M OIS rates. As it
turns out, 2-year forward swap curves anchored in the belly are ideally suited to this purpose.
Using three such selected curves, and assuming that the 3Mx3M OIS will reach a value of
4.15% (i.e., the estimate from above), we can solve for the value of medium term Fed expec-
tations that would make these curves appear fair. The results of this exercise are shown in
Figure 13 - as can be seen, swap curves are pricing in a 3Mx3M / 15Mx3M OIS curve of
around -100bp, which is a good bit steeper than our forecast of -125bp as well as the current
market pricing (the 3Mx3M / 15Mx3M OIS curve currently stands near -123bp). This leads
us our second observation - forward swap curve steepeners are likely more attractive
than Fronts/Reds flatteners, as the former is underpricing Fed easing expectations rel-
ative to the latter.

Therefore, we recommend that clients favor outright front end longs in place of front
end steepeners on a relative basis, and favor forward curve and back end swap curve
steepeners over outright duration longs in Reds, when positioning for a more dovish
Fed.

Figure 12: Swap curves are currently priced to a forward OIS that is~15bp Figure 13: Swap curves are pricing in a 3Mx3M / 15Mx3M OIS curve of
lower than the current 3Mx3M forward OIS around -100bp, which is steeper than our forecast as well as the current
Current level (%), Mispricing (%)*, Beta to 3Mx3M OIS**, and Implied 3Mx3M OIS (%)*** market pricing
for the 2s/5s and 2s/7s spot swap yield curves as well as the average, 8/22 Implied* 3Mx3M / 15Mx3M OIS curve for various fwd swap yield curves, 8/22; %
Spot 2s/5s Spot 2s/7s Implied
Cur. Level -0.38 -0.41 3Mx3M / 15Mx3M
Mispricing 0.07 0.08 curve
Beta wrt 3Mx3M OIS -0.27 -0.39 2Y fwd 5s/7s -0.99
Implied 3Mx3M OIS 4.12 4.19 2Y fwd 5s/10s -1.00
Average 4.15 2Y fwd 7s/10s -1.01
Cur 3Mx3M OIS 4.39 Average -1.00
Cur 3Mx3M / 15Mx3M curve -1.20
Source: J.P. Morgan. Source: J.P. Morgan.
* Mispricing is calculated as Cur. Curve - Fair Value as shown in Figure 11 * Implied 3Mx3M / 15Mx3M OIS curve is calculated as the current mispricing from our fair value model
** Beta with respect to 3Mx3M OIS comes from the regression described in Figure 11 (Figure 11), assuming an implied value for 3Mx3M OIS of 4.15% (Figure 12), divided by Beta wrt 3Mx3M
*** Implied 3Mx3M OIS is calculated as Mispricing / Beta wrt 3Mx3M OIS, plus the current level of / 15Mx3M OIS curve, plus the current level of the 3Mx3M / 15Mx3M OIS curve.
3Mx3M OIS.

8
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

Trading Recommendations

• Initiate 5s/30s swap spread curve flatteners

The cheapening in zero-duration spreads has coincided with the surge in T-bill supply,
but this should reverse as T-bill net issuance turns negative in September. Moreover,
term funding premium likely biased higher in the near term due to mispricing, falling
share of price-insensitive investors in the UST market and eventual higher duration sup-
ply. Taken together, this points to wider swap spreads at the front end and a flatter spread
curve and we prefer expressing this through 5s/30s swap spread curve flatteners.
-Pay fixed in 4.25% Jun 30 2029 maturity matched SOFR swap spreads. Buy $100mn
notional of the 4.25% Jun 30 2029 (yield: 3.657%, PVBP: $447.1/bp per mn notional),
and pay fixed in $97.9mn notional of a maturity matched SOFR swap (coupon: 3.354%,
PVBP: $456.7/bp per mn notional) at a swap spread of -30.3bp.
-Receive fixed in 4.625% May 15 2054 maturity matched SOFR swap spreads. Sell
$24.7mn notional of the 4.625% May 15 2054 (yield: 4.107%, PVBP: $1813.5/bp per
mn notional), and receive fixed in $23.9mn notional of a maturity matched SOFR swap
(coupon: 3.305%, PVBP: $1869.0/bp per mn notional) at a swap spread of -80.2bp.
• Initiate 7s/20s weighted swap spread curve steepeners
Maturity matched swap spread in the 7Y sector are wide relative to the term structure,
while 20Y spreads are narrow relative to the term structure. Therefore, as a relative value
trade, we recommend a weighted 7s/20s spread curve steepener where the weighting is
designed to hedge against a broader rise in term funding premium (which would flatten
the overall spread curve).
-Receive fixed in 4.25% Jun 30 2031 maturity matched SOFR swap spreads. Sell
$100mn notional of the 4.25% Jun 30 2031 (yield: 3.702%, PVBP: $611.3/bp per mn
notional), and receive fixed in $100.5mn notional of a maturity matched SOFR swap
(coupon: 3.33%, PVBP: $608.1/bp per mn notional) at a swap spread of -37.2bp.
-Pay fixed in 4.125% Aug 15 2044 maturity matched SOFR swap spreads. Buy $20.0mn
notional of the 4.125% Aug 15 2044 (yield: 4.189%, PVBP: $1336.5/bp per mn notion-
al), and pay fixed in $18.5mn notional of a maturity matched SOFR swap (coupon:
3.441%, PVBP: $1443.2/bp per mn notional) at a swap spread of -74.8bp.
• Unwind calendar spread wideners in US Futures
As the roll cycle is over 30% complete, we recommend unwinding this calendar
spread at a loss of 0.8 ticks. For original trade write up, see Fixed Income Markets Week-
ly 2024-08-16.
• Unwind calendar spread narrowers in FV Futures
For the same reason as above, we recommend unwinding at a loss of 0.1 ticks. For origi-
nal trade write up, see Fixed Income Markets Weekly 2024-08-16.
• Unwind TU/TY invoice spread curve flatteners (1:0.35 weighted)
This trade has underperformed our expectations and we recommend unwinding at a loss
of 6.3bp. For original trade write up, see Fixed Income Markets Weekly 2024-06-07.
• Unwind long A+100 1Yx5Y payer swaptions versus selling A-100 1Yx5Y receiver
swaptions, delta-hedged daily, to position for a correction in skew
This trade has underperformed our expectations and we recommend unwinding at a loss
of 8.5abp. For original trade write up, see Fixed Income Markets Weekly 2024-04-19.
• Maintain 10Y swap spread narrowers
P/L on this trade is currently -0.3bp. For original trade write up, see Fixed Income Mar-
kets Weekly 2024-08-16.
• Maintain 3s/7s swap spread curve flatteners

9
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC Interest Rate Derivatives
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

P/L on this trade is currently -0.5bp. For original trade write up, see Fixed Income Mar-
kets Weekly 2024-08-16.
• Maintain 0.875% June 2026 / 0.875% September 2026 swap spread curve flatten-
ers
P/L on this trade is currently 0.1bp. For original trade write up, see Fixed Income Mar-
kets Weekly 2024-08-16.
• Maintain longs in 6Mx5Y swaption implied volatility on an outright basis, delta
hedged daily
P/L on this trade is currently -0.4abp. For original trade write up, see Fixed Income Mar-
kets Weekly 2024-08-02.
• Maintain conditional exposure to a flatter 1s/7s swap yield curve in a selloff using
6M expiry payer swaptions
P/L on this trade is currently -4.4bp. For original trade write up, see Fixed Income Mar-
kets Weekly 2024-07-12.
• Continue to overweight 6Mx5Y swaption straddles versus 150% of the vega risk
in 6Mx30Y straddles
P/L on this trade is currently -1abp. For original trade write up, see Fixed Income Mar-
kets Weekly 2024-07-12.
• Continue to Pay-fixed in 4.625% Feb ‘26 maturity matched swap spreads
P/L on this trade is currently -1.7bp. For original trade write up, see Fixed Income Mar-
kets Weekly 2024-05-31.
• Maintain 1:0.75 risk weighted 7s/10s maturity matched swap spread curve steep-
eners
P/L on this trade is currently -1.3bp. For original trade write up, see Fixed Income Mar-
kets Weekly 2024-05-31.
• Continue to Pay-fixed in 4.375% Aug ‘28 maturity matched swap spreads
P/L on this trade is currently -1.5bp. For original trade write up, see Fixed Income Mar-
kets Weekly 2024-05-31.
• Continue to overweight 1Yx10Y straddles versus a gamma-neutral amount of
1Yx15Y straddles
P/L on this trade is currently -2.2abp. For original trade write up, see Fixed Income Mar-
kets Weekly 2024-05-03.
• Continue to overweight 6Mx5Y and 6Mx30Y swaption volatility (vega weights of
0.32 and 0.76, respectively) versus selling 6Mx10Y swaption volatility
P/L on this trade is currently 0abp. For original trade write up, see Fixed Income Markets
Weekly 2024-04-05.

Closed trades over the past 12 months

P/L reported in bp of yield for swap spread, yield curve and misc. trades, and in annualized
bp of volatility for option trades, unless otherwise specified

Note: trades reflect Thursday COB levels, and unwinds reflect Friday COB levels

10
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

Trade Entry Exit P/L

Spreads and basis
10Y spread narrower 8/25/2023 9/8/2023 1.6
3Y spread widener 8/18/2023 9/22/2023 (0.2)
FV invoice spread wideners by buying FVZ3 and paying fixed in a forward
9/8/2023 9/29/2023 (2.2)
starting swap
Initiate 10s/30s swap spread curve flatteners 9/15/2023 10/13/2023 0.3
2Y spread narrowers 10/13/2023 10/27/2023 1.2
5s/10s swap spread curve flatteners, paired with a 10% risk-weighted 5s/10s Treasury
10/13/2023 12/8/2023 1.2
curve flattener
FV/UXY invoice spread curve flatteners , paired with a 10% risk-weighted FV/UXY
10/13/2023 12/8/2023 1.7
Treasury futures curve flattener
Initiate swap spread narrowers in the 2Y sector 11/3/2023 12/8/2023 3.9
Initiate swap spread wideners in the 5Y sector 11/3/2023 12/8/2023 (3.2)
Initiate 20s/30s swap spread curve flatteners hedged with a 35% risk-weighted
9/29/2023 1/5/2024 0.2
20s/30s Treasury curve flattener
Initiate 3s/5s swap spread curve flatteners 12/8/2023 1/5/2024 0.9
Initiate swap spread wideners in the 5Y sector 1/5/2024 1/19/2024 4.2
Pay in 1.375% Nov ‘31 maturity matched swap spreads paired with 5% risk in 5s/10s
1/10/2024 1/26/2024 2.4
OTR Treasury curve steepeners
Initiate 5s/30s swap spread curve flatteners 12/15/2023 2/2/2024 3.8
Initiate swap spread narrowers in the 30Y sector 1/5/2024 2/2/2024 0.2
Maintain a widening bias on swap spreads in the belly but switch to the 2.625% Feb
1/19/2024 2/23/2024 2.4
2029 issue
Maintain a widening bias on swap spreads in the belly using the 2.625% Feb 2029
issue, but hedge the narrowing risk from higher implied volatility with a long in 2Yx2Y 1/19/2024 2/23/2024 2.7
swaption straddles
Initiate 2s/5s (100:60 weighted) maturity matched swap spread curve steepeners 1/26/2024 2/23/2024 (3.3)
Pay-fixed in 2.125% May ‘26 maturity matched swap spreads 3/15/2024 3/22/2024 3.6
Pay-fixed in 1.875% Jul ‘26 maturity matched swap spreads 3/22/2024 4/5/2024 3.4
Initiate 20s/30s 1.33:1 wtd maturity matched spread curve steepeners hedged with a
30% risk weighted 20s/30s steepener, but use an equi-notional blend of the Nov 53s 2/23/2024 4/12/2024 (2.5)
and Aug 53s to create a synthetic approximate par bond in the 30Y leg
Initiate 30Y swap spread wideners 3/15/2024 4/12/2024 (0.1)
Pay in 4% Jan ‘27 maturity matched swap spreads 4/5/2024 4/26/2024 2.2
Initiate 10Y swap spread wideners using the Nov ‘33 issue 3/8/2024 5/17/2024 0.9
Initiate exposure to a steeper 7s/10s 1:0.75 weighted swap spread curve, and we
5/10/2024 5/28/2024 0.3
recommend implementing the 7Y narrower leg with TYM4 invoice spreads

Initiate 1:0.9 risk weighted 20s/30s maturity matched swap spread curve steepeners 5/31/2024 6/14/2024 3.9

Initiate 5s/10s off-the-run swap spread curve steepeners (100:60 weighted) 3/8/2024 7/12/2024 (4.7)
Initiate 7s/10s swap spread curve steepeners paired with 25% risk in a 7s/10s UST
3/22/2024 7/12/2024 (0.2)
curve steepener
Pay in Feb 2037 maturity matched swap spreads versus receiving in USU4 invoice
6/14/2024 7/12/2024 0.8
spreads
Buy Feb 37s versus selling USU4 Futures 6/14/2024 7/12/2024 2.7
Pay-fixed in 1.875 Feb 2027 maturity matched swap spreads 4/26/2024 7/26/2024 (5.9)
Initiate 5s/30s spread curve flatteners 5/3/2024 7/26/2024 5.1
Pay-fixed in 4% Feb 2034 maturity matched swap spreads 5/17/2024 7/26/2024 (6.7)
Initiate 10s/30s swap spread curve flatteners 7/26/2024 8/2/2024 (0.8)
Initiate TU/TY invoice spread curve flatteners (1:0.35 weighted) 6/7/2024 8/23/2024 (6.3)

11
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC Interest Rate Derivatives
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

Duration and curve Entry Exit P/L

Initiate 2Y forward 1s/10s swap curve steepeners paired with equal risk in a 3M
08/18/23 08/25/23 4.7
forward 3s/15s swap curve flattener
Sell the belly of the U4/H5/U5 3M SOFR futures butterfly (-0.43:1:-0.64 risk
09/08/23 09/22/23 2.3
weighted)
Initiate 3M forward 2s/10s swap curve steepeners paired with 110% of the risk in
09/15/23 09/22/23 4.9
Reds/Greens flatteners
Initiate 3Y forward 2s/10s swap curve steepeners, paired with 1Y forward 1s/5s
09/22/23 09/29/23 5.0
swap curve flatteners (33% risk weighted)
Initiate 2Y forward 2s/30s swap curve steepeners paired with equal risk in a 3M
08/25/23 10/20/23 (32.1)
forward 2s/30s swap curve flattener
Initiate 3Y forward 3s/30s swap curve steepeners paired with 63% risk in a 3M
09/08/23 10/20/23 (18.3)
forward 5s/30s swap curve flattener
Initiate M4/Z4 SOFR futures curve steepeners paired with 55% of the risk in H4/Z5
09/22/23 10/20/23 (9.9)
3M SOFR futures curve flatteners
Initiate conditional exposure to a flatter 2s/10s swap yield curve in a rally using 6M
09/29/23 11/03/23 (9.2)
expiry receiver swaptions
Initiate 3M fwd 5s/10s swap curve flatteners paired with 2Y fwd 5s/10s swap curve
10/27/23 11/03/23 4.6
steepeners (50:100 risk weighted)
Initiate conditional exposure to a flatter 5s/10s swap yield curve in a rally using 3M
10/27/23 11/03/23 0.8
expiry receiver swaptions
Initiate 2Y fwd 2s/5s curve flatteners paired with 25% risk in a 1st/5th SOFR futures
11/03/23 11/22/23 5.8
curve flattener
Initiate 6M fwd 5s/15s curve flatteners paired with equal risk in 3Y fwd 2s/15s
11/03/23 11/22/23 4.6
steepeners
Buy the belly of a 40:65 weighted Z4/Z5/Z6 3M SOFR futures butterfly 11/03/23 11/22/23 5.6
Initiate 9M fwd 1s/10s flatteners paired with a 50% risk weighted long in March 2025
11/09/23 11/22/23 15.8
3M SOFR futures
Initiate 3Mx1Y / Greens weighted flattener (1:0.8 weighted) paired with 80% risk in a
01/05/24 01/26/24 2.9
3M forward 2s/10s swap curve steepener
Initiate U5/M6 SOFR futures curve flatteners paired with 110% of the risk in Z5/U6
12/15/23 02/02/24 1.6
3M SOFR futures curve steepeners
Buy the belly of a 35:65 weighted H5/H6/Z6 3M SOFR futures butterfly 12/15/23 02/02/24 1.9
Initiate 1Yx2Y / 3Mx30Y swap yield curve steepeners paired with 65% risk in a Reds
01/19/24 02/02/24 1.1
/ 10Yx5Y swap yield curve flattener

Receive fixed in the belly of a 6M forward 2s/7s/30s swap butterfly (40:69 weighted) 01/19/24 02/02/24 0.1

Initiate conditional exposure to a composite flattener in a selloff by buying 3Mx2Y

payer swaptions (100% risk) versus selling 3Mx5Y and 3Mx30Y payer swaptions 02/02/24 02/23/24 14.3
(24% and 100% risk respectively)
Buy H5 and Z5 3M SOFR futures contracts (30:100 weighted) versus selling U4 3M
SOFR futures contracts (100% risk weight) and pay-fixed in 6M forward 10Y swaps 02/09/24 02/23/24 5.8
(40% risk weight)
Initiate exposure to rising term premium by selling the belly of a 35/65 weighted 3M
12/08/23 03/08/24 (1.5)
forward 5s/10s/15s butterfly
Initiate SFRM5 / Blues flatteners paired with a 110% risk weighted 3M forward
03/01/24 03/22/24 3.3
2s/10s steepener
Initiate 3M forward 3s/20s swap curve steepeners, paired with 85% of the risk in a
03/08/24 04/05/24 3.2
SFRM5 / 3Mx10Y curve flattener
Initiate 2Y forward 2s/5s swap curve steepeners paired with 40% risk in 3M forward
01/26/24 04/12/24 (11.4)
2s/5s flatteners
Initiate conditional exposure to a flatter 2s/5s swap yield curve in a selloff using 3M
03/22/24 04/12/24 5.2
expiry payer swaptions
Initiate conditional exposure to a flatter 18M/5Y swap yield curve in a selloff using
04/05/24 04/12/24 3.1
6M expiry payer swaptions
Initiate conditional exposure to a flatter 1s/5s swap yield curve in a selloff using 3M
02/23/24 04/26/24 (9.4)
expiry payer swaptions
Initiate 1Y forward 2s/5s swap curve flatteners, paired with weighted longs in H5 and
03/22/24 04/26/24 (9.5)
H6 3M SOFR futures (20% and 10% respectively)

Initiate SFRM5 / 3Mx5Y flattener, hedged with a 20% risk weighted long in Reds 04/05/24 04/26/24 (5.0)

Initiate 5th/9th SOFR futures curve flatteners hedged with a risk weighted amount 2Y
04/12/24 05/03/24 3.0
forward 2s/5s swap curve steepeners

Receive in the belly of a 0.625/1.0/0.375 weighted 3M forward 2s/7s/20s swap

02/23/24 05/17/24 2.7
butterfly, with an additional 15% risk weighted long in June 2024 3M SOFR futures

Initiate 3M forward 2s/3s swap curve flatteners hedged with a 14% risk weighted
02/23/24 05/17/24 0.4
long in the M4 3M SOFR futures
Initiate 3M forward 5s/15s swap curve flatteners paired with 70% risk in a 2Y forward
03/22/24 05/17/24 2.8
2s/20s swap curve steepener
Buy the belly of a 2s/5s/15s weighted swap butterfly (50:50 weighted) 04/12/24 05/17/24 2.4

Initiate 3M forward 1s/3s swap curve flatteners, hedged with a 65% risk weighted
05/03/24 05/17/24 2.1
long in the 3Mx3M sector and a 25% risk weighted short in the 15Mx3M sector

Buy the belly of a U5/M6/H7 SOFR Futures butterfly (-0.37:1:-0.63 risk weighted) 03/01/24 05/31/24 (0.7)

Initiate a Greens/Blues steepener paired with 55% of the risk in a SFRM5 / 3Mx5Y
03/15/24 05/31/24 2.2
swap curve flattener
Buy the belly of a Z5/U6/H7 3M SOFR futures butterfly (-0.33:1.0:-0.67 risk
04/19/24 05/31/24 1.8
weighted)
Initiate 12Mx3M / 3Mx10Y flatteners, paired with 33% risk in a 3Mx2Y receive fixed
05/17/24 06/06/24 5.7
swap

Initiate 3M fwd 3s/15s flatteners paired with 85% risk in 2Y fwd 3s/30s steepeners 05/17/24 06/06/24 4.5

Initiate 3Mx1Y / 2Yx1Y forward swap curve flatteners as a bullish proxy 05/31/24 06/06/24 11.5
Initiate 3Mx1Y / 2Yx1Y swap curve flatteners paired with 45% risk-weighted pay-
05/31/24 06/06/24 0.0
fixed positions in 3Mx5Y swaps
Initiate conditional exposure to a flatter 1s/2s swap yield curve in a rally using 1Y
04/05/24 06/14/24 4.0
expiry receiver swaptions
Initiate Z5/U6 SOFR futures flatteners paired with H6/Z6 SOFR futures steepeners
03/01/24 07/12/24 1.8
(0.85:1 risk weighted)
Initiate conditional exposure to a steeper 10s/20s swap yield curve in a selloff using
03/15/24 07/12/24 4.0
9M expiry payer swaptions
Initiate 3M forward 10s/15s swap curve steepeners paired with 25% risk in 3M
04/26/24 07/12/24 3.5
forward 3s/7s flatteners
Initiate 3M forward 10s/30s steepeners (1:1.5 risk weighted) paired with M5/Z5 3M
06/07/24 07/12/24 2.9
SOFR futures flatteners
Initiate 15Mx3M / 1YX1Y forward swap curve flatteners, paired with 20% of the risk
05/03/24 08/02/24 (1.3)
in a long in 18Mx3M and a 24% risk weighted short in 3Mx5Y forward swaps

Receive in 3Mx3Y and 3Mx5Y swaps versus paying in 3Yx1Y and 12Mx3M swaps 06/14/24 08/02/24 (8.8)

Initiate a synthetic 6M forward 2s/10s swap curve steepener, constructed by

07/12/24 08/02/24 (28.9)
replacing the 2Y leg with a 6Mx3M / 18Mx3M flattener
Initiate a synthetic 3M forward 5s/30s swap curve steepener, constructed by
07/26/24 08/02/24 (18.1)
replacing the 5Y leg with a 3Mx3M / 3Mx2Y flattener
Initiate conditional exposure to a flatter 1s/2s swap yield curve in a rally using 6M
07/26/24 08/02/24 (8.8)
expiry receiver swaptions

12
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

Options Entry Exit P/L

Sell volatility on 5-year tails paired with a pay-fixed swap overlay 08/18/23 08/25/23 6.2
Sell 6Mx30Y swaption straddles versus buying 6Mx10Y and selling 6Mx2Y straddles
08/04/23 09/08/23 0.0
on a suitably weighted and delta hedged basis
Sell 9M expiry single-look YCSO straddles on the 5s/30s curve, versus buying 35%
06/02/23 09/08/23 2.3
vega-weighted amount of 9Mx2Y swaption straddles
Sell volatility on 30-year tails paired with a pay-fixed swap overlay 08/25/23 09/15/23 8.6
Sell 2Yx5Y swaption straddles versus buying 10Yx10Y swaption straddles 08/25/23 09/15/23 5.3
Buy 10Yx10Y straddles 03/17/23 09/22/23 1.9
Sell 2Yx2Y swaption straddles versus buying a vega-neutral amount of 1Yx10Y
08/25/23 09/29/23 3.4
swaption straddles
Buy 1Yx10Y straddles versus selling 140% of the vega risk in 1Yx5Y straddles and
08/25/23 10/13/23 3.2
buying 50% of the risk in 1Yx2Y swaption straddles
Sell 2Yx30Y swaption straddles versus buying a vega-neutral amount of 10Yx10Y
09/08/23 10/13/23 (4.5)
swaption straddles
Sell 2Yx2Y swaption straddles versus buying a vega-neutral amount of 7Yx10Y
09/15/23 10/13/23 3.0
swaption straddles
Sell 6Mx30Y swaption straddles with a pay fixed swap overlay 09/22/23 10/13/23 (11.6)
Sell 1Yx30Y swaptions straddles versus buying a vega-neutral amount of 5Yx30Y
09/22/23 10/13/23 (1.5)
swaption straddles, paired with a 1Yx30Y pay-fix swap
Overweight 6Mx7Y swaption volatility versus a vega-neutral amount of 1Yx10Y
10/13/23 11/03/23 3.5
swaption volatility
Buy 1Yx10Y swaption straddles paired with a receive-fixed swap overlay to hedge
10/27/23 11/03/23 (1.1)
against a decrease in implieds due to lower yields
Initiate short gamma exposure in the 6Mx30Y sector 11/03/23 12/08/23 7.9
Sell 6Mx30Y swaption straddles versus buying a vega-neutral amount of 1Yx30Y
11/03/23 12/08/23 0.4
swaption straddles
Initiate long gamma exposure in the 1Yx10Y sector 12/08/23 02/23/24 (2.1)
Initiate long exposure to 2Yx2Y volatility with a suitably weighted short in July Fed funds
01/05/24 02/23/24 2.6
futures to hedge the downside risk from a fall in Fed-easing expectations
Overweight 2Yx2Y swaption straddles versus a vega-neutral amount of 5Yx5Y
01/19/24 02/23/24 3.2
swaption straddles
Overweight 6Mx10Y swaption straddles versus selling 110% of the vega risk in 1Yx10Y
01/26/24 02/23/24 1.3
swaption straddles
Buy 6Mx10Y straddles 03/01/24 03/08/24 (6.6)
Initiate longs in 6Mx10Y swaption implied volatility, delta hedged daily 03/15/24 03/22/24 (5.1)
Overweight 6Mx2Y swaption straddles versus a theta-neutral amount of 6Mx5Y
01/19/24 04/12/24 (8.8)
swaption straddles

Sell 2Yx30Y swaption volatility versus buying 50% of the vega risk in 2Yx2Y swaption
02/23/24 04/12/24 1.5
volatility , and pay fixed in 2Yx 10Y swaps to neutralize the bullish bias in this trade

Buy 6Mx10Y volatility versus 6M forward 6Mx10Y volatility, synthetically constructed via
04/05/24 04/12/24 3.2
suitably weighted 1Yx10Y and 6Mx10Y swaptions
Buy 2Yx5Y swaption straddles on a delta hedged basis 04/12/24 04/19/24 1.0
Sell 6Mx10Y straddles on a delta hedged basis 04/26/24 05/03/24 3.1
Sell 6Mx15Y straddles on a delta hedged basis 05/03/24 05/10/24 (1.6)
Sell 1Yx2Y volatility versus buying a theta neutral amount of 1Yx5Y volatility 05/17/24 06/06/24 0.6
Initiate Fronts/Green curve flatteners, paired with delta hedged long volatility positions
05/31/24 06/06/24 5.6
in the 1Yx10Y swaption sector
Initiate exposure to long curve volatility by buying 6Mx2Y and 6Mx10Y straddles (41:60
12/08/23 06/07/24 1.1
vega weighted) versus selling 6Mx5Y straddles
Buy 2Yx5Y swaption straddles on a delta hedged basis, versus 6Mx1Y / 18Mx1Y
06/07/24 06/14/24 3.6
flatteners
Initiate outright shorts in 3Yx30Y swaption implied volatility, but delta hedge monthly or
03/08/24 07/12/24 (5.0)
if rates move by over 25bp in either direction since the last delta hedge
Buy 1Yx30Y volatility versus 1Y forward 1Yx30Y volatility, synthetically constructed via
03/15/24 07/12/24 (2.5)
suitably weighted 2Yx30Y and 1Yx30Y swaptions
Buy 65% risk weighted 1Yx10Y swaption volatility versus selling 1Y forward 2Yx10Y
swaption volatility, synthetically constructed via suitably weighted 1Yx10Y and 3Yx10Y 04/12/24 07/12/24 (4.4)

Sell 6Mx10Y swaption straddles on a delta hedged basis, paired with a short position in
06/14/24 07/12/24 2.2
Greens
Buy 1Yx5Y straddles versus selling vega-neutral amount of 5Yx5Y straddles 07/12/24 08/02/24 4.7
Buy A+100 1Yx5Y payer swaptions and sell A-100 1Yx5Y receiver swaptions, delta-
04/19/24 08/23/24 (8.5)
hedged daily, to position for a correction in skew
Others Entry Exit P/L
TU calendar spread narrowers 8/18/2023 8/25/2023 0.5
WN calendar spread wideners 8/18/2023 8/25/2023 (3.5)
Position for a widening in WN calendar spreads 11/9/2023 11/22/2023 1.8
Buy the USZ3/USH4 weighted calendar spread hedged with USZ3/WNZ3 Treasury
11/9/2023 11/22/2023 0.2
futures curve flatteners
Position for a narrowing in FV calendar spreads 11/9/2023 11/22/2023 0.3
WN calendar spreads narrowers 2/13/2024 2/23/2024 (0.7)
UXY calendar spreads narrowers 2/13/2024 2/23/2024 (0.8)
TU calendar spreads narrowers 2/13/2024 2/23/2024 (0.3)
Sell the 4.75% Nov 2053 WNM4 basis, versus buying payer swaptions 3/8/2024 4/12/2024 1.0
Initiate calendar spread wideners in US Futures 5/17/2024 5/28/2024 (3.0)
Initiate calendar spread narrowers in UXY Futures 5/17/2024 5/28/2024 0.4
Initiate calendar spread narrowers in FV futures 5/17/2024 5/28/2024 1.0
Initiate calendar spread wideners in US Futures 8/16/2024 8/23/2024 (0.8)
Initiate calendar spread narrowers in FV Futures 8/16/2024 8/23/2024 (0.1)
Total number of trades 140
Number of winners 93
Hit rate 66%

13
J.P. Morgan Securities LLC North America Fixed Income Strategy
Srini Ramaswamy AC 23 August 2024
(1-415) 315-8117
srini.ramaswamy@jpmorgan.com

Recent Weeklies
16-Aug-24 Hopscotch
2-Aug-24 Powell sees the data, markets see one data point
26-Jul-24 Joie de Louvre
12-Jul-24 The Evitable Conflict
14-Jun-24 Pardon my French
07-Jun-24 The BOC and ECB begin a game of BOCCE-Ball, likely without the Fed for now
31-May-24 The planets, if not the stars, are aligning
17-May-24 Another brick in the vol
10-May-24 The election enters the hearts and minds of options traders
3-May-24 R2-P2
26-Apr-24 Perfectly priced to patience
19-Apr-24 Should I stay or should I go?
12-Apr-24 A hairpin bend on the road to easing
5-Apr-24 Shaken, not stirred
22-Mar-24 The Fed, walking a tightrope, finds better balance
15-Mar-24 (P)PI day
08-Mar-24 The sun is the same, in a relative way, but vol is lower
01-Mar-24 Governor Vol-ler moves the market
23-Fed-24 What’s the rush
09-Feb-24 Soft landings, TouchdoWNs, and Safety in the End Zone
02-Feb-24 When it rains, it pours
26-Jan-24 All eyes on Washington
19-Jan-24 Polar vortex duration extension
05-Jan-24 Happy new taper
15-Dec-23 On the second day of FOMC, my true dove spoke to me
8-Dec-23 What I tell you three times is true
9-Nov-23 The tail that wagged the market
3-Nov-23 Descent towards a soft landing
27-Oct-23 Refunding, FOMC and Payrolls - a witch’s brew awaits
20-Oct-23 Early Onset Volloween
13-Oct-23 Darkening skies, even before the solar eclipse
29-Sep-23 Bennu there, done that
22-Sep-23 Central banks line up in a holding pattern
15-Sep-23 Hold my Fed
08-Sep-23 A Goldilocks economy leaves us thrice bearish
25-Aug-23 Navigate by the stars when R-star is blurry

14
J.P. Morgan Securities LLC North America Fixed Income Strategy
Srini Ramaswamy AC 23 August 2024
(1-415) 315-8117
srini.ramaswamy@jpmorgan.com

Outlooks
Interest Rate Derivatives 2024 Mid-Year Outlook: Waiting for someone or something to show you the
28-Jun-24 way
21-Nov-23 Interest Rate Derivatives 2024 Outlook: Goodbye Hard Times, Hello Great Expectations?
Recent Special Topic Pieces
13-Aug-24 US bond futures rollover outlook: September 2024 / December 2024
10-Jul-24 Trading Principal Factor Volatility
15-May-24 US bond futures rollover outlook: June 2024 / September 2024
29-Apr-24 Term Funding Premium and the Term Structure of SOFR Swap Spreads
13-Feb-24 US bond futures rollover outlook: March 2024 / June 2024
9-Nov-23 Death cab for QT
8-Nov-23 US bond futures rollover outlook: December 2023 / March 2024

15
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC Interest Rate Derivatives
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

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16
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC

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17
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
J.P. Morgan Securities LLC J.P. Morgan Securities LLC Interest Rate Derivatives
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
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Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
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Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 23 August 2024
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