Overview: Tactically long European duration outright and vs. US

Research evidence excerpt

Overview: Tactically long European duration outright and vs. US

Francis Diamond AC (44-20) 7134-1504 Global Markets Strategy J P M O R G A Nfrancis.diamond@jpmorgan.com

J.P. Morgan Securities plc 10 July 2026

Elisabetta Ferrara (44-20) 7134-2765

elisabetta.ferrara@jpmorgan.com

J.P. Morgan Securities plc

Overview

Tactically long European duration outright and vs. US

• A re-escalation of US-Iran tensions has brought energy prices/inflation concerns

back into focus this week, leading to a sharp sell-off across DM towards the top of

the recent trading ranges.

• With upside tail risk events in energy markets appearing contained and limiting

the risk of a further substantial sell-off, we entered tactical longs in 10Y Bund and

10Y gilts. On our long-term macro valuations model, 5Yx5Y USD and EUR OIS

yields are screening fair, while GBP is cheap, likely reflecting some premium in

GBP intermediate rates owing to the medium-term political/fiscal uncertainty.

The 1Yx1Y/5Y5Y GBP curve also screens too steep vs. front-end yields supporting

our bullish duration view on intermediates. On a cross-market basis, intermediate

US yields are still screening modestly rich vs. several other DMs once we adjust for

relative monetary policy expectations. We also stay long 10Y Germany vs. US.

• Demand dynamics: the latest release of IMF’s COFER data on foreign official

reserves shows that the USD share of FX reserves rose in 1Q27. Based on our esti-

mates of reserve allocation changes (net of FX and bond valuation effects), we find

there were net inflows into USD in 1Q26 pointing to a modest reversal of prior

reserve diversification flows, possibly around the start of the Middle East conflict.

In Japan, focus on GPIF allocation changes intensified this week. The possible allo-