Global Fixed Income Markets Weekly (Advance version): Trading the credibility gap

Research evidence excerpt

Global Fixed Income Markets Weekly (Advance version): Trading the credibility gap

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Our economists are now calling for an earlier Fed hike in December 2026 JPMorgan Securities Japan Co., Ltd.

instead of 2H27. In the UK, the BoE held rates at 3.75% at its July meeting, in

a tighter 6-3 vote. Guidance remained set in wait-and-see mode with still an

implicit tightening bias, although the central forecasts were more dovish than

the market expected. We call for a BoE hike in November but that will require

evidence of firming in underlying services inflation or wage expectations. In

Japan, the BoJ kept policy rates on hold at 1%, although striking a hawkish tone

that suggests the BoJ has become more attentive to upside inflation

developments; we continue to call for the next hike in October. Separately, in

Japan, market focus remained on potential shifts in GPIF allocation towards

domestic assets. We estimate that implications for foreign govies from such

re-allocation would likely be modest under two worst-case scenarios if

domestic bond allocation is increased within the current fluctuation bands or

in case of a Basic Portfolio review.

• Euro: We find steepening of Euro curves unjustified and find intermediate

German yields quite cheap now so prefer to stay long 10Y Germany outright.

Also keep long 10Y Bund vs. UST. Stay cautious on intra-EMU/€-SSA carry,

as ongoing US-Iran conflict challenges the summer carry narrative. Keep short

10Y Italy vs. France and hold UW 10Y Belgium vs. France/Germany.

• Japan: In Japan, GPIF-related speculation triggered short-covering and

helped the 10-year sector retrace part of its cheapness. While recent hawkish

BoJ communication could provide some flattening pressure on the curve, fiscal