JPMorgan Econ FI-Interest Rate Derivatives Should I stay or should I go-107709805

SriniRamaswamyAC(1-415)315-8117PhilipMichaelides(1-212)834-2096NorthAmericaFixedIncomeJPMORGANsrini.ramaswamy@jpmorgan.comphilip.michaelides@jpmchase.comStrategyJ.P.MorganSecuritiesLLCJ.P.MorganSecuritiesLLC19April2024IpekOzil(1-212)834-2305ipek.ozil@jpmorgan.comJ.P.MorganSecuritiesLLCInterestRateDerivativesShouldIstayorshouldIgo?•PolicyuncertaintycontinuestoremainconsiderablyelevatedaseconomicdatafailstodeliverthecorroborationofdisinflationsoughtbytheFed•Thesharprepricingofthefrontendofthecurvehasresultedcarryonshortstobemuchlessthanwhatitwastwomonthsago.Butmoreimportantly,beta-adjustedcarryisnowfairlysimilaracrossdifferentpointsintheSOFRfuturessector.Thisimpliesthatwellhedgedtradeswilllikelyofferlittlecarry,eventhoughthereisstillpositivecarrytobefoundinoutrightcurvetrades.Withsignificantmacrorisksinoutrightcurvetrades,andnegligiblecarryinwellhedgedones,werecommendtakingadvantageofrelativevalueopportunities...•…buythebellyofZ5/U6/H73MSOFRfuturesbutterfly(33:67weightsonthewings)asitappearsmispriced•Modestnarrowinginswapspreadsdespitetheheavypostbankearningsissuancethisweekisnoteworthyandsuggestspreadscouldbebiasedwiderinthenear-term.Weturnbullishonspreadwidenersinthebelly,inadditiontomaintainingourwideningbiasinthefrontend-negativeT-billnetissuance,healthybankdemandforUSTsonassetswapandwaningheadwindsfro...