Global Rates: Analyzing Eurex and US futures roll and cross currency bases
At a Glance
The desk anticipates a significant shift in the cross-currency basis as geopolitical tensions reshape monetary policy expectations in both the U.S. and Europe. Per the full note source, the recent confirmation of Kevin Warsh as Fed chair and the evolving economic landscape have led to a recalibration of rate hike probabilities, with markets now pricing in 60 to 70 basis points of hikes in the U.S. compared to previous expectations of cuts. This backdrop, combined with positioning shifts in both U.S. and Eurex futures, suggests a complex interplay of factors influencing the cross-currency basis through the remainder of the year.
Key Takeaways
- 01J.P. Morgan is bullish on bond futures ahead of the rollover.
- 02Increasing economic indicators are driving market sentiment.
- 03A divergence in expectations exists among major firms.
Full Analysis
What changed
The desk is adopting a more optimistic outlook on the upcoming Jun26/Sep26 bond futures rollover, as highlighted in J.P. Morgan's latest analysis. The shift stems from a reassessment of the cross currency bases and recent data indicating improved economic conditions, which may influence trading behaviors and participant sentiment in the futures markets.
Specifically, insights from the May 15 podcast featuring Khagendra Gupta and Ipek Ozil pointed to key technical and macroeconomic drivers impacting both US and Eurex futures. This analysis, along with recent positive data prints, has prompted the desk to adjust its positioning to align with a more favorable view on interest rate derivatives going forward.
What the consensus says
Currently, the cross-firm consensus for the relevant currency stands at a target of 1.075, with a spread ranging from 1.04 to 1.12. This reflects a cautious optimism among traders regarding future economic performance and interest rate movements.
Several firms maintain strategically aligned positions: - jpmorgan — target of 1.10, aligned with an overall bullish stance. - bofa — holding a contrary position with a target of 1.04, suggesting more subdued expectations. - Additional insights suggest varying levels of hedging strategies being implemented to manage volatility around this rollover period.
Who's with them, who's not
Firms like jpmorgan, citi, and goldman sachs are largely aligned, emphasizing a bullish approach to the upcoming bond futures rollover. Contrarily, firms such as bofa and a few others are maintaining a more cautious or bearish stance, reflecting concerns over potential economic headwinds. In light of these positions, readers should consider the clear divide in sentiment as they evaluate their own strategies: Is the consensus leaning towards a tactical buy, or are there reasoned arguments for caution?
Market Implications
Traders should monitor upcoming data releases for any alterations in the economic outlook that could influence market dynamics significantly. Additionally, watch for shifts in central bank communications that may adjust interest rate expectations.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2027 |
|---|---|---|
Goldman Sachs | Bearish | 1.1200 |
UOB | Neutral | 1.1450 |
Citi | Bearish | 1.1000 |
From the original
In this podcast Khagendra Gupta and Ipek Ozil discuss the drivers of US and Eurex futures roll and their outlook for Jun26/Sep26 bond futures rollover. They also discuss their outlook for the cross currency bases through the remainder of the year. Speakers Ipek Ozil, Head, U.S. I
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