JPMorgan Econ FI-US Fixed Income Overview Cruel summer-108709544

PhoebeWhiteAC(1-212)834-3092HollyCunningham(1-212)834-5683NorthAmericaFixedIncomeJPMORGANphoebe.a.white@jpmorgan.comholly.cunningham@jpmorgan.comStrategyJ.P.MorganSecuritiesLLCJ.P.MorganSecuritiesLLC14June2024LiamLWash(1-212)834-5230liam.wash@jpmchase.comJ.P.MorganSecuritiesLLCUSFixedIncomeOverviewCruelsummer•Economics:HeadlineCPIwasflatforthemonthofMaywhilecorerose0.16%,ledinpartbyareductioninthecoreservicesex-housingcomponent.WearetrackingcorePCErose0.14%inMay,leavingtheoyarateat2.6%.Weforecastretailsalesrose0.4%inMay,withthecontrolgroupup0.5%overthemonth•Treasuries:Weturntacticallybearishinthe5-yearsector:thefirstcutisstillmonthsaway,yieldsareatmulti-monthlows,OAT/bundspreadsarepricedforamorenegativeoutcome,andnextweek’sretailsalesarelikelytoshowahealthybounce.Thecurrentenvironmentstillsupportscarry-seekingbehavior,butriskadjusted-carryislowandthe5-yearsectorisneartherichestlevelsontheflyYTD.Thefrontendoftheinflationcurveappearscheap:add1Y1Yinflationswaplongs•InterestRateDerivatives:SwapspreadsweremostimpactedbyEuropeandevelop-mentsthisweek,narrowing2-3bpacrossmuchofthecurveandbyasmuchas5bpinthe20-yearsector.WebelievethereactioninUSmarketsislikelyoverdoneandunlikelytobesustained.Inaddition,ouroutlookfortheFedbalancesheetshowsReservesstay-ingcomfortablyabove$3tnallyearandO/NRRPbalancesnear$400bnincoming...