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JGBS AUCTION

10-Year JGB Auction Results

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Sell-Side Views Post The Budget

US TSYS

Early Richening Holds

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J.P.Morgan Recommend 3-Year Breakeven Narrowers

US TSYS/TIPS

J.P.Morgan write “1Yx1Y inflation swaps have risen roughly 20bp on the week, to near the highest levels since early June, just before the press guided markets to a larger 75bp rate hike at the mid-month FOMC meeting. Since then, market-implied peak OIS rates have risen 50bp and economic data have weakened, driving our 1-year recession model up from under 30% to above 50%, gasoline futures prices have dropped by over 30%, and both headline and core CPI inflation showed signs of softening in the latest report. Against this backdrop, despite still-tight labor markets and an undercurrent of strength in some of the more persistent categories of inflation, we project headline and core CPI inflation will drop below 3% by the middle of next year. Thus, 1Yx1Y inflation swaps near 3.40% appear rich versus fundamentals.”

  • “Similarly, 1Yx1Y CPI swaps haven risen to levels close to 1Y1Y UK RPI swaps, even as inflation dynamics appear to be diverging between the UK and U.S. economies.”
  • “While liquidity makes it difficult to fade the move in 1Yx1Y inflation swaps, it is notable that the 2- to 3-year sector has richened significantly along the cash breakeven curve as well. At the very front end, Oct-2025 TIPS stand out as rich versus surrounding maturities, and indeed, adjusted for the erosion of carry, Oct-2025 breakevens are trading above their June local peak. Against this backdrop, we recommend initiating Oct-2025 breakeven narrowers at current levels.”
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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