Interest Rate Derivatives: When doves cry

Research evidence excerpt

Interest Rate Derivatives: When doves cry

Ipek Ozil AC (1-212) 834-2305 Emre Alptuna (1-212) 270-4843 Global Markets Strategy J P M O R G A Nipek.ozil@jpmorgan.com emre.alptuna@jpmorgan.com

J.P. Morgan Securities LLC J.P. Morgan Securities LLC 10 July 2026

Chris Hayward (1-212) 622-6152

chris.hayward@jpmchase.com

J.P. Morgan Securities LLC

Interest Rate Derivatives

When doves cry

• In an eventful two weeks, markets have repriced hawkishly as concerns around the Mid-

dle East conflict were renewed, and the FOMC minutes leaned hawkish

• Despite the large moves in yields over the renewed concerns around the Middle East,

swap spreads reaction to the event was rather muted, with the long-end narrowing by

only 1bp this week. This could indicate that the geopolitical backdrop may not be a driv-

er of swap spreads going forward...

• … As such carry trades are likely to become attractive again. However, bank earnings

season poses a risk as banks are likely to project AOCI losses to the tune of ~$2.5-3bn

over the quarter. Additionally, with a higher than usual July issuance expected, issuance-

related swapping activity could pressure spreads narrower. Therefore, we recommend

patience before initiating widening exposure

• Implieds, on the other hand, increased following the news. However, the increase was

less than prior spikes, and began to reverse more quickly than it did in the past three

episodes since April. With implieds slightly below our YE26 projection, we wait for

better entry levels before initiating shorts and remain neutral

It's been an eventful two weeks in the markets since our last publication. On the geopolitical

front, there were renewed concerns around the Middle East as President Trump said that the

ceasefire was “over” and there were strikes on both sides.