US Treasury Market Daily: How many hawks make a hike?

Research evidence excerpt

US Treasury Market Daily: How many hawks make a hike?

Jay Barry AC (1-212) 834-4951 Harry Downie (1-212) 270-9500 Global Markets Strategy J P M O R G A Njohn.f.barry@jpmorgan.com harry.j.downie@jpmorgan.com

J.P. Morgan Securities LLC 22 July 2026

Jason Hunter AC (1-212) 270-0034 Liam L Wash (1-212) 834-5230

jason.x.hunter@jpmorgan.com liam.wash@jpmchase.com

Unwind 1Yx1Y/2Yx3Y zero-coupon inflation

swap steepeners

We had anticipated steepening in the 1Yx1Y/2Yx3Y inflation curve for three reasons:

positive carry of the trade, a light data calendar ahead of the FOMC, and richness of the

1Yx1Y segment relative to the 2Yx3Y and 0Yx1Y. That view has been challenged by

sustained rises in commodity prices and the growing risk of a hawkish policy surprise.

Historically, 2Yx3Y has exhibited little sensitivity to Fed pricing. This year, however, it

has shown an unusually negative relationship with OIS pricing and our Fed hawk-dove

score, while 1Yx1Y has remained positively correlated (Figure 31Yx1Y/2Yx3YinflationswapstepenershaveshownarisktoamorehawkishFed). We view this as

consistent with a more hawkish reaction function having a larger effect on medium-term

inflation expectations than the front end. Given the hawkish tilt to Fed

communications, sustained rises in commodity prices, and our bullish breakeven

medium-term view, we recommend unwinding our 1Yx1Y/2Yx3Y zero-coupon

inflation swap steepener ahead of the FOMC.

Figure 3: 1Yx1Y/2Yx3Y inflation swap steepeners have shown a risk to a more hawkish Fed

3m3m/15m3m OIS curve (bp, lhs) relative to 1Yx1Y/2Yx3Y zero-coupon inflation swap steepeners

35 3m3m/15m3m OIS curve (lhs)

1Yx1Y/2Yx3Y (rhs)

5 17.5

-10

-25

-40

-2.5

-55

-70

-85

-100 -22.5

Jul 25 Sep 25 Oct 25 Dec 25 Feb 26 Mar 26 May 26 Jul 26

Source: J.P.Morgan