JPMorgan Econ FI-Interest Rate Derivatives Hopscotch-109894865

VIP专享

3.0 复利王子 2024-08-29 89 16 1.26MB 25 页免费

侵权投诉

Srini Ramaswamy

(1-415) 315-8117

srini.ramaswamy@jpmorgan.com

J.P. Morgan Securities LLC

Ipek Ozil (1-212) 834-2305

ipek.ozil@jpmorgan.com

J.P. Morgan Securities LLC

Philip Michaelides (1-212) 834-2096

philip.michaelides@jpmchase.com

J.P. Morgan Securities LLC

Arjun Parikh (1-212) 834-4436

arjun.parikh@jpmchase.com

J.P. Morgan Securities LLC

North America Fixed Income

Strategy

16 August 2024

JPMORGAN

•Policy uncertainty is back in the picture. Although markets appear to agree on Septem-

ber with respect to timing, the pace and extent of easing remains uncertain for this year

and the next. Such policy uncertainty is an important driver of jump risk, which is

already evident. All of this supports a bullish view on short expiry volatility, despite the

apparent richness of implieds - although implied volatility in most sectors appears rich

relative to our fair value estimates, our analysis suggests that policy uncertainty is cur-

rently significant enough to be a strong offset. Therefore, we maintain our bullish stance

on short expiry vol

•The zero duration swap spread appears too narrow to fair value and we believe this is

likely to correct in the near term as dealer capacity returns in repo markets. With front

end spreads appearing to find a bottom, we maintain our widening bias on swap spreads

at the front end

•At the same time, term funding premium is likely biased wider in coming weeks and

months, which should pressure longer maturity swap spreads narrower and the spread

curve flatter - initiate 10Y swap spread narrowers and initiate 3s/7s spread curve flatten-

ers

•One a relative basis, the swap spread curve between the 2-year note front and back con-

tract CTDs appears too steep, likely because of futures market technicals, and should

correct as the roll progresses - initiate 0.875% Jun 2026 / 0.875% Sep 2026 maturity

matched swap spread curve flatteners

•The ampleness of Reserves received some attention this week, thanks to recent work by

Fed staff that outlines an elegant approach to measuring this by examining the slope of

the demand curve in the fed funds market. We borrow the spirit of this work, but believe

that it is important to (i) expand the concept of liquidity to include RRP as well as

Reserves, and (ii) focus on SOFR rather than the effective funds rate when examining

the sensitivity to quantity shocks. Our expanded analysis suggests that liquidity condi-

tions are clearly tightening and QT is likely in its end game. But thanks to a tapered pace,

a little more room for RRP declines, and an expected reduction in the TGA later this year,

there will likely be a few more months of headroom for QT before it ends. We look for

QT to reach an end later this year with the Fed balance sheet near ~$7tn, RRP balances

slightly below ~$300bn and Reserves near ~$3.3tn

•Earlier this month, the expiry of benchmark 3M expiry swaptions first crossed the

November election date. By examining the relative performance of election-impacted

expiries (3M in this case) versus a control expiry such as the 6M, we can infer election

premia being priced into the vol markets. The current experience suggests that options

markets view election risk as extending to ~4 business days after election, for a cumula-

tive election premium of ~6 additional vol days. This is lower than the experience in May

when 6M expiries first crossed the election - back then, cumulative premia peaked near

15 additional vol days, spanning a period ending 7 business days after the election. This

is a reminder that shifts in election sentiment could impact short expiry implied volatili-

ty in coming weeks

•We include a short summary of our outlook for Treasury futures calendar spreads as we

head towards the September - December roll cycle; we recommend selling the FV and

buying the US weighted calendar spreads

Interest Rate Derivatives

Hopscotch

Srini Ramaswamy

(1-415) 315-8117

srini.ramaswamy@jpmorgan.com

J.P. Morgan Securities LLC

Ipek Ozil (1-212) 834-2305

ipek.ozil@jpmorgan.com

J.P. Morgan Securities LLC

Philip Michaelides (1-212) 834-2096

philip.michaelides@jpmchase.com

J.P. Morgan Securities LLC

Arjun Parikh (1-212) 834-4436

arjun.parikh@jpmchase.com

J.P. Morgan Securities LLC

North America Fixed Income

Strategy

Interest Rate Derivatives

16 August 2024

JPMORGAN

Hopscotch

August started with a bang, as the soft Payrolls report caused markets to pivot sharply

towards pricing in aggressive easing, and yields reached their recent trough on that same day

(the 2nd of August). But even right then, it appeared to be an over-reaction. After all, earlier

that same week, Fed Chair Powell had noted during the press conference that the Fed would

watch the data, not data points. Given that, the post-Payrolls appeared to be a case of "too-

much, too-soon" even then. The past two weeks appear to be proving that point. Forward

OIS rates have risen rather steadily from their post-NFP lows, and are now near the higher

end of their 2-week range (Figure 1). This normalization in Fed expectations has been

helped by Fed-speak in recent weeks. As seen in Figure 2, it is apparent that Fed speakers

have increased their focus on labor markets relative to inflation, but they also appeared to

dispel or downplay recession fears (Figure 2). All in all, markets appear engaged in a game

of hopscotch, collectively trying to land on the correct square.

Figure 1: Forward OIS rates have risen steadily from their post-NFP lows

Forward 1M OIS rates and statistics at FOMC meeting dates for Sep 2024, Nov 2024, Dec 2024, and Jan 2025, 8/2/2024 -

8/16/2024; %

start chg end min mean median max

Sep 4.87 0.15 5.02 4.84 4.94 4.95 5.02

Nov 4.44 0.28 4.72 4.44 4.59 4.61 4.72

Dec 4.13 0.26 4.39 4.12 4.27 4.29 4.41

Jan 3.90 0.25 4.15 3.89 4.04 4.03 4.17

Forward OIS

at meeting

dates

Source: J.P. Morgan.

Figure 2: Fed speakers are now focused on both inflation and labor markets, but voiced caution in terms of cutting expectations and downplayed

recession risks

Selected Fed-speak excerpts, 8/2/2024 - 8/16/2024

Date Fed Speakers Comments

8/16/2024 Goolsbee, nv

When labor market starts to turn, tends to worsen fast, Some leading indicators of recession flashing warning, GDP still pretty strong, pockets of strength in economy, Want job mkt to stabilize,

concerns it'll weaken more

8/15/2024 Musalem, nv

Election-related uncertainty can impact economy, Models suggest rates will be higher than pre-pandemic, Don't think recent volatility has had macro impact yet, My view is 2% inflation target serves

public very well, Risks of easing too early or too much, could be costly, Recent inflation data have been `very encouraging', Fed not behind the curve, Focused now on both sides of our dual

mandate, Don't see recession in next few quarters,

8/15/2024 Bostic, v

Fed can't afford to be late to ease policy

8/14/2024 Goolsbee, nv

Economic conditions will warrant size of rate cuts, Policy is `very restrictive,' economy not overheating, Would focus much more on employment if job market weakens, Rising unemployment may

indicate worsening job market, More concerned about jobs mandate `on the margin'

8/13/2024 Bostic, v

Goal is to get back to normal and normal is close, Unemployment has gone up, but more supply good, Are at inflection point where inflation getting close to target, Don't want to go from hot to

freezing cold labor market, Recession not in outlook, Fed needs a 'little more' data, but rate cut possible by year-end, Recent inflation data gives confidence we can return to 2%

8/10/2024 Bowman, v

Higher unemployment reflects weaker hiring, not layoffs, Rise in unemployment 'exaggerating' labor market cooling, Appropriate to cut rates if inflation keeps falling, Inflation still 'uncomfortably'

above target,

8/9/2024 Collins, nv

Timing and pace of cuts to be based on data, Appropriate to begin easing 'soon' if data as expected

8/8/2024 Schmid, nv

Labor market still appears broadly healthy, Fed should be 'looking for the worst' in inflation data, Growth, demand still strong despite july jobs report, Appropriate to cut if inflation continues to come in

low, Inflation target close but 'not quite there'

8/8/2024 Goolsbee, nv

If too tight for too long, need to watch real economy, Now we're getting back to more normal conditions, Need to see more than payrolls, more than one month, Question is if job market will hold or

keep worsening, Fed watches markets, but they don't drive policy

8/8/2024 Barkin, v

Fed has ‘time’ to assess economy, determine response, US may be heading into long-term worker shortage, Economic numbers approaching normal levels, Optimistic we’ll see good inflation in

coming months, Time needed to determine if economy is steadily normalizing or requires intervention

8/6/2024 Daly, v

No labor market indicators flashing red, watching closely, Economy has momentum, want to make sure we keep that, Job market is slowing, cant let it slow too much, Policy adjustments will be

necessary in coming quarters, Risks to employment, inflation goals now equally balanced, Too early to tell if job mkt slowing sustainably or worse, Don't react on one data point, look at totality of

data, Underneath hood of jobs report, more room for confidence, Don't see labor market softness turning into weakness now, We have a reasonably solid labor market

8/5/2024 Goolsbee, nv

July jobs report represents 'one number', Fed can wait for more data before September meeting, Fed must pay attention to weakness in jobs market, Fed remains in balanced risk posture, Jobs data

not yet indicating recession

8/2/2024 Barkin, v

Inflation risk of lower rates driving up home prices, Have healthy, strong demand growth and inf. coming down, Will take some time for rate cuts to permeate economy, A little more confident on

inflation in near term, Question is how long low hiring, low firing can persist, Consumers still spending, but more price conscious, 114,000 jobs pretty normal amount of jobs historically

8/2/2024 Goolsbee, nv

Need to balance policy with economy in `short order', If inflation and job market continue to cool, Fed should cut, Jobs data follows trend of cooling labor market, US economy is growing but it's

slowing down, When conditions warrant cut, tends not to be just one, Rate-cut size will be determined by conditions, Fed has to respond to higher unemployment, I've been warning we are tight,

restrictive, Never want to over-react to one month's numbers

Source: J.P. Morgan., Bloomberg Finance L.P.

Srini Ramaswamy

(1-415) 315-8117

srini.ramaswamy@jpmorgan.com

J.P. Morgan Securities LLC

Ipek Ozil (1-212) 834-2305

ipek.ozil@jpmorgan.com

J.P. Morgan Securities LLC

Philip Michaelides (1-212) 834-2096

philip.michaelides@jpmchase.com

J.P. Morgan Securities LLC

Arjun Parikh (1-212) 834-4436

arjun.parikh@jpmchase.com

J.P. Morgan Securities LLC

North America Fixed Income

Strategy

16 August 2024

JPMORGAN

Going forward, given the extent of retracement that has already happened, front end

yields and Fed expectations will likely remain rangebound in the near term, until more

clarity emerges from next month's employment report (which remains 3 weeks away),

or perhaps at the Jackson Hole symposium next week. Thus, until then, markets will likely

remain somewhat in limbo, but in a state of heightened sensitivity to data. We have often

noted that policy uncertainty is an important driver of jump risk, and policy uncer-

tainty is now back after several months of relative clarity. To be sure, it now appears

highly likely that rate cuts will begin in September, but the pace and extent of easing remain

uncertain in the eyes of the market. By carefully de-constructing the implied probability

density function inferred from call and put premia on Z4 SOFR futures, we obtain combina-

tion weights (which must sum to one) that are associated with policy outcome scenarios (see

Powell sees the data, markets see one data point more details). Right now, the sum total of

weights associated with shallow-cut scenarios (defined as under 75bp of easing by year end,

or under 150bp by mid-2025) is quite comparable with the total weight on deep cut scenarios

(defined as 125bp or more of rate cuts by year end, or 175bp or more easing by mid-2025).

This means that policy uncertainty is once again elevated, after a brief 2-month period

where markets had converged on shallow-cut expectations. Moreover, such policy uncer-

tainty is also a feature further forward, which can be seen by examining implied distribu-

tions on June 2025 SOFR futures as well (Figure 3).

Figure 3: Policy uncertainty remains elevated, not just in the near term but

also at a mid-2025 horizon

Total weights on YE24 and 1H25 policy rate scenarios representing Shallow Cuts*, and

Deep Cuts*, as calculated from a decomposition of the implied probability distribution

associated with Dec 2024 and June 2025 SOFR futures**; May 2024 – Current

0.0

0.2

0.4

0.6

0.8

1.0

May 24 Jun 24 Jul 24 Aug 24

Z4 Shallow Z4 Deep

M5 Shallow M5 Deep

Source: J.P. Morgan.

* Scenarios involving 75bp or less in rate cuts by YE24, or 150bp or less of rate cuts by mid-2025, are

defined as shallow cut scenarios. Deep cut scenarios are those with even more easing by those respec-

tive horizons. For more details, see Figure 2 of What’s the rush?.

** We enumerate a list of scenario-specific Normal distributions with fixed standard deviations and

means that are separated by 25bp, and then require the implied distribution to be a weighted combina-

tion of these individual distributions. The weights are then solved for, by fitting to the observed prices

of calls and puts at various different strikes. For more details of our approach, see What’s the rush?.

Figure 4: The frequency of jumps is already higher, and will likely remain

so thanks to policy uncertainty

Rolling 2-week jump frequency (%), and policy certainty metric (right, inverted)**, 6/20 -

current

0.4

0.5

0.6

0.7

0.8

0.9

1.00%

10%

20%

30%

6/20 7/4 7/18 8/1 8/15

Observed jump frequency

Policy certainty metric (right,

inv.)

Policy

uncertainty,

high jump risk

Policy clarity, low

jump risk

Source: J.P. Morgan.

*A jump is defined as any daily change in UST 10Y yields over 10bp, on an absolute basis. Jump

frequency is defined as the number of times a jump has occurred in the past two weeks, divided by

the number of observations in that period

** Policy certainty metric is the weight on the "shallow" cuts scenario (for YE24) as defined in Figure

3. A high weight on this scenario implies policy certainty, and a weight closer to 0.5 implies policy

uncertainty

But why do we dissect implied distributions to measure policy uncertainty in this man-

ner? Because policy uncertainty is an important driver of jump risk - as new informa-

tion causes markets to reassess these weights, that can result in large moves in forward

OIS rates since the cone of policy outcomes is quite wide. Indeed, this is already evident

- in the two weeks since Payrolls, there have been three days when 10-year yields changed

by 10bp or more from the previous days close (Figure 4). Thus, jump risk is already high,

resulting in high delivered volatility. This is a strong argument in favor of maintaining a

研报加载中……请稍候！
如果长时间未打开，您也可以点击刷新试试。

下载研报到电脑，查找使用更方便

免费 16人已下载

立即下载

摘要：

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.MorganSe...

展开>> 收起<<

JPMorgan Econ FI-Interest Rate Derivatives Hopscotch-109894865.pdf

共25页,预览8页

还剩页未读，继续阅读