1SriniRamaswamyAC(1-415)315-8117srini.ramaswamy@jpmorgan.comJ.P.MorganSecuritiesLLCIpekOzil(1-212)834-2305ipek.ozil@jpmorgan.comJ.P.MorganSecuritiesLLCPhilipMichaelides(1-212)834-2096philip.michaelides@jpmchase.comJ.P.MorganSecuritiesLLCArjunParikh(1-212)834-4436arjun.parikh@jpmchase.comJ.P.MorganSecuritiesLLCNorthAmericaFixedIncomeStrategy16August2024JPMORGAN•Policyuncertaintyisbackinthepicture.AlthoughmarketsappeartoagreeonSeptem-berwithrespecttotiming,thepaceandextentofeasingremainsuncertainforthisyearandthenext.Suchpolicyuncertaintyisanimportantdriverofjumprisk,whichisalreadyevident.Allofthissupportsabullishviewonshortexpiryvolatility,despitetheapparentrichnessofimplieds-althoughimpliedvolatilityinmostsectorsappearsrichrelativetoourfairvalueestimates,ouranalysissuggeststhatpolicyuncertaintyiscur-rentlysignificantenoughtobeastrongoffset.Therefore,wemaintainourbullishstanceonshortexpiryvol•Thezerodurationswapspreadappearstoonarrowtofairvalueandwebelievethisislikelytocorrectintheneartermasdealercapacityreturnsinrepomarkets.Withfrontendspreadsappearingtofindabottom,wemaintainourwideningbiasonswapspreadsatthefrontend•Atthesametime,termfundingpremiumislikelybiasedwiderincomingweeksandmonths,whichshouldpressurelongermaturityswapspreadsnarrowerandthespreadcurveflatter-initiate10Yswapspreadnarrowersandinitiate3...
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