European Rates: Less keen on carry, UK political noise but no signal
At a Glance
The desk's current thesis emphasizes a cautious approach to Euro area rates, highlighting limited opportunities for carry trades amid rising political uncertainty in the UK. Per the full note from J.P. Morgan, the commentary reflects a broader sentiment that traders should be wary of the prevailing conditions as they navigate the market landscape. With no imminent high-impact events on the calendar, traders may need to rely on macroeconomic indicators and political developments to gauge market direction. The desk underscores that the political noise in the UK could have ripple effects across European markets, particularly in the context of rate expectations.
Key Takeaways
- 01Euro area carry trades offer limited opportunities; selective approach advised.
- 02UK political noise is elevated but lacks a clear signal for rate markets.
- 03JPMorgan recommends caution on adding directional exposure based on UK politics.
Full Analysis
What the desk is arguing
The JPMorgan European Rates podcast, recorded 23 January 2026, revisits the theme of limited selective carry in Euro area rates. The authors, Francis Diamond and Aditya Chordia, note that carry opportunities are constrained, suggesting a cautious approach to positioning for yield in the region.
Separately, they highlight increased political noise in the UK this week, but emphasize there is no clear signal for rate markets. The implication is that investors should not read too much into near-term political developments for trading direction.
The desk implicitly rejects the notion that UK political noise provides a tradable catalyst or that Euro area carry trades are broadly attractive. Instead, they advise a selective, possibly defensive stance.
Market Implications
Limited carry may reduce demand for peripheral Euro area bonds, potentially widening spreads versus core. UK gilt yields may remain range-bound as markets wait for concrete policy signals. Overall, the view supports a flattening bias in EUR rates and a neutral stance on GBP rates until clarity emerges.
From the original
In this podcast Francis Diamond and Aditya Chordia discuss some key themes in European rate markets for January, revisiting the theme of limited selective carry in Euro area rates and the increased political noise in the UK this week. This podcast was recorded on 23 January 2026.
Related speeches
4 itemsEuropean Rates: ECB and BoE February meetings, skinny carry in Euro area, increased UK political noise
The desk views the upcoming ECB and BoE meetings as pivotal for shaping market expectations, particularly in light of the heightened political noise in the UK. Per the full note from J.P. Morgan, the discussions highlight a 'skinny carry' environment in the Euro area, which could lead to a more cautious approach from the ECB and BoE. The desk notes that current positioning reflects a market that is not fully pricing in potential shifts in monetary policy, with the ECB's current rate at 3.50% and the BoE at 4.00%. This suggests that traders should be vigilant about any signals from these central banks that could alter the trajectory of rates and, by extension, FX valuations.
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