Interest Rate Derivatives: August (NFP’s version)

Research evidence excerpt

Ipek Ozil AC (1-212) 834-2305

J.P. Morgan Securities LLC

Chris Hayward (1-212) 622-6152

J.P. Morgan Securities LLC

Emre Alptuna (1-212) 270-4843

J.P. Morgan Securities LLC

Global Markets Strategy

JPMORGAN

07 August 2026

Interest Rate Derivatives

August (NFP’s version)

Today’s payrolls print surprised to the downside, resulting in yields rallying, vols following lower in sympathy, and the OIS curve repricing dovishly

However, Fedspeak has turned more hawkish post-FOMC. Together, these developments have likely widened the range of possible outcomes, and we thus expect greater

policy uncertainty and event risk associated with upcoming CPI prints ahead of the September FOMC meeting

Although we are inclined to be long gamma given this backdrop, our empirical gamma

returns model indicates that owning gamma may result in statistically significant negative returns. We therefore recommend waiting for better entry levels before initiating

longs

Swap spreads have had another quiet week, with spread volatility near cycle lows. Lower spread volatility and an improving geopolitical backdrop could bring a resurgence in

carry-seeking spread trades, where the front end offers the most attractive carry and

roll...

…however, valuations point the other way, and we are therefore cautious in the very

front end but see the 3-5 year sector as offering the best risk-to-reward based on the

expected narrowing from our fair value model versus the carry gain

We instead recommend initiating swap spread curve steepening exposure, as term funding premium remains ~2 standard deviations above fair value, and spreads now exhibit

a lower sensitivity to oil and thus geopolitical developments relative to earlier in the

Middle East conflict—initiate 10s30s spread curve steepeners

August (NFP’s version)

In what was an eventful week that started with the quarterly refunding announcement, the

biggest surprise and most material development for markets was the July payrolls report:

it surprised to the downside, with a -23K print (versus 80K consensus), while the prior two

months were revised down 103k and 55k, respectively, and the participation rate decreased

12bp (US: School’s out for summer, M.…