JPMorgan Econ FI-Interest Rate Derivatives R2-P2-108018700

SriniRamaswamyAC(1-415)315-8117PhilipMichaelides(1-212)834-2096NorthAmericaFixedIncomeJPMORGANsrini.ramaswamy@jpmorgan.comphilip.michaelides@jpmchase.comStrategyJ.P.MorganSecuritiesLLCJ.P.MorganSecuritiesLLC03May2024IpekOzil(1-212)834-2305ArjunParikh(1-212)834-4436ipek.ozil@jpmorgan.comarjun.parikh@jpmchase.comJ.P.MorganSecuritiesLLCJ.P.MorganSecuritiesLLCInterestRateDerivativesR2-P2•Afteraninformation-packedweekthatbroughtrefinancingestimatesandarefundingannouncementfromtheTreasury,theFOMCmeetingaswellasthePayrollsreport,marketbackdropremainsoneofdatadependencyandpolicyuncertainty.Thiswilllike-lypersistuntilmoretimepassesandnewdatamaterializestoclarifythemacroeconomicoutlookthatinturnsproducesmoreclarityaroundthelikelypathofpolicyrates•Untilthen,yieldsarelikelytobechoppyonadailybasisbutultimatelyremainrange-bound,whichisbearishforvolatilityascarry-seekinginvestorslooktoshortgammastrategiestoearncarry.Thisisalreadyevidentandcausingimpliedvolatilitytotradecheaptofairvalue,butlikelynotyetcheapenoughforlongstraddlestobeprofitableandnotascheapastheybecamebackinMarch-remainbearishongamma•Onarelativevaluebasis,overweight1Yx10Yswaptionvolatilityversus1Yx15Yastherealizedvolatilityon10-yeartailshasoutperformedrealizedvolatilityon15-yeartailsbyanamountwellinexcessoftheimpliedcurrentvolatilitydifferential•Rangebound...