J.P.Morgan Remain Neutral On Breakevens

Ahead of the June CPI reading J.P.Morgan note that “while this print should have little impact on the outcome of the July FOMC meeting, details of the report and any upside surprises, particularly within the core basket, may impact Fed tightening expectations for September and beyond. Indeed, OIS forwards are already pricing in 58bp in tightening at the September meeting, on top of a nearly certain 75bp hike later this month. Against this backdrop, we see limited potential for material widening on the back of an upside surprise, since such an outcome could continue to push terminal policy rate expectations higher. Further, while TIPS breakevens appear significantly cheap to our fair value estimates and we see upside inflation risks, we remain neutral breakevens on elevated uncertainty, high volatility, and poor liquidity “