JPMorgan Econ FI-Interest Rate Derivatives All eyes on Washington-106177361

SriniRamaswamyAC(1-415)315-8117PhilipMichaelides(1-212)834-2096NorthAmericaFixedIncomeJPMORGANsrini.ramaswamy@jpmorgan.comphilip.michaelides@jpmchase.comStrategyJ.P.MorganSecuritiesLLCJ.P.MorganSecuritiesLLC26January2024IpekOzil(1-212)834-2305ArjunParikh(1-212)834-4436ipek.ozil@jpmorgan.comarjun.parikh@jpmchase.comJ.P.MorganSecuritiesLLCJ.P.MorganSecuritiesLLCInterestRateDerivativesAlleyesonWashington•Muchawaitsnextweek,withtheFOMCmeetingaswellasTreasury’srefundingannouncementcoincidingwithmonthend.TheFOMCislikelytoholdratessteadyandshiftfromatighteningtoaneutralbias,whiletherefundingislikelytobringanotherroundofcouponauctionsizeincreasesinlinewiththeguidancefromlatelastyear.Butunderthehood,therewilllikelybealottolookforinthedetails•Separately,theFedtweakedtheBTFPprogramthisweektoerasetherisklessarbitragerepresentedbythegapbetweenIORandtermBTFPfundingrates.Onthemargin,thisshouldresultinslightlyfasterBTFPbalancerunoffandacorrespondingdeclineinReserves.OurrevisedprojectionsfortheFed’sbalancesheetsizeandliabilitiesincorpo-ratesthisaswellasatrue-uptospotbalances.Thankstoalreadylowerspotlevels,O/NRRPbalancesareprojectedtofalltobelow~$300bnbySeptember,whichinturncouldcauseQTtoendbythen•Swapspreadsinthebellyremainnarrowrelativetofairvalue,althoughthegaphasshrunksteadilysinceyearend.Wecontinuetoseevalueinswapspr...