Interest Rate Derivatives: Waiting for Godot

Research evidence excerpt

Interest Rate Derivatives: Waiting for Godot

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 24 July 2026

Chris Hayward (1-212) 622-6152

chris.hayward@jpmchase.com

J.P. Morgan Securities LLC

Interest Rate Derivatives

Waiting for Godot

• Implied distributions have continued to shift further to the right as geopolitical risk, and

the associated inflation concerns have come back into focus over the last couple of

weeks, with markets pricing in a ~30% probability of a hike at the July meeting

• Implied vols rose in tandem with yields, but the reaction (so far) has been more muted

compared to the height of the conflict in March, as evidenced by lower vol-rate and

vol-oil betas this time around

• Geopolitical risk and the upcoming FOMC meeting make a good case for being long vol,

but we recommend patience given that implied-to-realized vol ratios are elevated across

the surface

• Swap spreads have also exhibited a lower beta to oil this time around, but the surge in

oil prices and vols is likely to be a headwind for carry-seeking strategies. Despite TFP

remaining elevated compared to fair value, we remain neutral on the spread curve given

the geopolitical backdrop

• We present an analysis of the impact of President Trump’s Truth Social posts about the

Middle East and tariffs on intraday rates volatility. We find that for both topics, a handful

of posts were associated with significantly elevated intraday vol when the topic first rose

to prominence due to associated policy or geopolitical developments...

• ...however, in both cases, after a few months, the reaction of rates markets to posts on