European Derivatives: Rates in a Range, Carry on the Menu

Research evidence excerpt

European Derivatives: Rates in a Range, Carry on the Menu

Khagendra Gupta AC (44-20) 7134-0486 Global Markets Strategy J P M O R G A Nkhagendra.x.gupta@jpmorgan.com

J.P. Morgan Securities plc 19 June 2026

Marcus Mayfield (44-20) 3493-8050

marcus.mayfield@jpmorgan.com

J.P. Morgan Securities plc

European Derivatives

Rates in a Range, Carry on the Menu

• The ECB raised rates last week and we expect it to deliver another 25bp hike in

September. We find the €STR curve to be broadly fair and expect front-end yields

to move in tight ranges over the summer.

• An environment of range-bound yields against a backdrop of moderating volatility

is supportive of carry trading – a theme that we expect to gain momentum over the

coming weeks.

• We recommend paying 1Yx1Y in the 1Y/1Yx1Y/2Yx1Y €STR 50:50 fly, which

trades proxy short duration but offers around 8bp of carry over 3M and currently

appears too rich. We also highlight several attractive trades that offer attractive

carry but are structured to be duration-neutral at inception.

• We close longs in 3Mx(1Yx1Y) receiver fly. Hold bearish exposures via Dec26/

Dec28 Euribor and fronts/greens conditional bear flattener.

• Keep medium-term steepening bias on 10s/30s swap curve. 2Yx2Y/10Yx10Y is an

attractive alternative which offers similar positive carry but is too flat versus

10s/30s swap curve.

• Take profit in long Dec26 SOFR put versus Euribor after the sharp repricing in

USD yields post a hawkish Fed

• Swap spreads are expected to stay in tight ranges; stay neutral on Schatz swap

spreads and keep a modest widening bias on Bund swap spreads.

• Re-enter Bund/Buxl swap spread curve steepener as a 10s/30s swap curve steepen-

ing proxy with decent positive carry. We also highlight several forward swap