Global Rates: Analyzing Eurex and US futures roll and cross currency bases

Hi, and welcome to At Any Rate, J.P. Morgan's global research podcast, where we take a look at some of the drivers behind the biggest trends and themes across fixed income currency and commodity markets. I'm Ipeka Zil, Head of U.S.

Interest Rate Derivative Strategy at J.P. Morgan, and today I am joined by my colleague, Kagan Ragupta, Head of European Interest Rate Derivative Strategy. So today we will do a doubleheader and discuss the drivers and outlook for June-September U.S. and New York bond futures rollover, as well as our outlook for the cross-currency basis for the remainder of the year.

We are recording this on May 15th, 2026, and our comments today are based on our published research available on J.P. Morgan markets. So Kagan, welcome to this special edition podcast.

You know, a lot of things have happened since last time we recorded this podcast, and that was in February. The biggest development, of course, being the Middle East conflict that has roiled the markets and has altered monetary policy expectations significantly across both sides of the pond. So in the U.S., markets are now priced to some probability of a hike by year-end, which is a big shift from where we were in February when we were priced to about 60 basis points of easing.

And also, again, in the U.S., Kevin Warsh was just confirmed by the Senate as an ex-Fed chair. The moves have been broadly similar for Euro and U.K. as well. We are now pricing around 60 to 70 basis points of hikes compared to 10 to 20 basis points of cuts before the conflict.

And of course, there is the ongoing political theater in the U.K. with Starmer's prime ministership in danger. So overall, significant uncertainty remains regarding follow-up actions from European central banks. So with that, let's just get started.

So again, given the geopolitical backdrop, what are the main drivers of EURX futures this time around? Hi, Yvette. Thanks.

Yeah, you know, a lot has changed since we last sat down to discuss our rollout looks three months ago. For your question, for EURX futures, I think it's a full plate. Burn shots and BDP futures have different dominant CTDs, which suggests that the calendar spreads for these futures are directional and that the duration calendar spreads, which is what we take our views on, are expected to be driven by the evolution of both the CTD spreads and relative value factors.

However, with the ongoing uncertainty in macro and in central banks and politics, we refrain from taking strong views on the curve. So that really leaves us with relative value factors. In other words, essentially how the front CTD will behave relative to the back CTD over the coming days.

And that's the views on those will drive burn shots and BDP futures role. For other EURX futures, they have joint CTD, which means that funding rates becomes a relevant drivers, in my view. Now on this, we find the ECB pricing to be broadly fair and expected to remain stable over the coming days.

Bond-specific repo specialness is therefore the main driver for these roles with the same joint dominant CTD. And then there is a positioning. As you know, we don't really have an official source of positioning for EURX futures.

So we estimate these using moves in future prices and open interest. We make some role-related adjustments on this. As for these estimation, we find that shots and bond futures positioning is short, whereas Buxtel and BTP is long.

This is broadly consistent with anecdotal evidence and also in line with our own fine survey. So to the extent that these are held via real money managers, the rolling of these futures will also have an impact on the role as well. Now, let me turn it to you, Peck.

So how does positioning look in the U.S.? Yeah. So as you know, we do have the CFTC data in the U.S. that we can use for positioning.

And for that, we always look at the net positioning in asset managers. So we do this because asset managers, you know, usually by contract, they prefer to not go into delivery. And if they're significantly long, then it can pressure calendar spreads narrower.

So on a level basis, asset managers are net long in all sectors, but they're especially long in the ultra-long bond, ultra-10-year note, and, you know, the 10-year note contracts relative to history. So in our last podcast, I had talked about the shift from the bond contract into the ultra-long in asset managers. And that trend seems to have continued in the past few months as well.

Okay. So maybe let's move on to some of the other factors. Are you seeing any idiosyncratic factors?

I read in your note that Voxel has equity-cheap CTD. So how do you think the net optionality is evolving and how is that driving your views? That is correct.

Now, in fact, the front and back Voxel contracts are close to peak optionality in terms of current CTD switch probability as the CTDs are kind of, as I said, equity-cheap. We estimate the delivery option value to be around $0.02 for the June contract and $0.16 for the September contract. Our analysis shows that the net optionality will decrease in a rally as August 54 will become increasingly dominant.

However, this optionality will continue to increase in a sell-off as a large sell-off could lead to a CTD switch to the August 52. But in any case, our bias is that the long-end Germany is likely capped around current levels. And that risk reward, in my view, supports a reduction in net optionality, which is bearish for the calendar spread.

So what about the U.S.? There seems to be a lot of optionality in the U.S. contract as well. Yeah, that's right.

There is a lot of switch optionality in the U.S.-backed contract. And that's the only place where we do see some optionality. And that optionality is similar due to the increase in yields over the past few months.

And it appears to not be fully pricing in the contract. So we do think the back contract could cheapen from current levels. And you know, calendar spread could be pressured wider or else equal.

So in the interest of time, I do want to talk a bit about the cross-currency bases and our outlook for them over the remainder of the year. I think, yes, you know, that's a good idea. Maybe we start with the Fed.

You mentioned earlier that the Fed expectations have shifted significantly. So what's your view going forward, especially now that we have a new chair? And also just a couple of days ago, the Fed reduced the size of their reserve management purchases, right?

Yeah. So let me start with our views on the Fed. And they're actually currently unchanged.

We've had the Fed on hold this year for a while now on the back of labor market strengthening and inflation remaining above Fed's target, which is currently what's playing out. But of course, like one risk to this view is the geopolitical backdrop. And we'll have to see how long this conflict persists.

And yes, we do have a new chair. But we also think that structure of the Federal Reserve System will likely constrain Walsh, whose new chair, particularly with respect to the near-term direction of the Fed funds rate, meaning it will be hard for him to convince the FOMC for a cut, as underscored by the three dissents that we got in the last meeting in favor of a more hawkish guidance. And he's also been an advocate of a smaller Fed balance sheet.

But as he himself said in his hearing, that will not be a quick process. And I guess like talking about the balance sheet, that leads to your question about reserve management purchases. The Fed did just lower the size of their RMPs to $10 billion a month.

And if you recall, it used to be $40 billion until tax day, so from December to April. And then it was lowered to $25 billion last month, and now it's $10 billion. And with RMPs, they work in keeping reserves high and funding conditions soft.

So we now expect them to continue until September at this pace, until corporate tax day, and then stop. However, even with that outlook, reserves are likely to remain over $3 trillion for the remainder of the year. So while we're on the topic of the Fed, global DM cross-currency bases have exhibited some volatility, but have remained in a relatively narrow range.

What have been the drivers of these moves from a top-down perspective? Yes, DM bases have moved in tandem across jurisdictions. And if we run a PCA on these front-end bases, I find that the first PCA factor explains around 80% to 90% of the total variance across the curve.

Now, we also find that the first PCA factor has tracked the Middle East geopolitical uncertainty very closely over the last few weeks, and we have captured this uncertainty by proxying that via Brent futures prices. In the early stages of the conflict, the Brent prices and DM bases moved in tandem, which we think reflected a dynamic of central bank policy repricing and worsening risk sentiment. However, more recently, as oil prices have kind of stabilized in a range at current elevated levels, this co-movement has faded, suggesting that the geopolitical risk premium embedded in the bases may be in the process of being partially unwound.

Now, outside of this, we find that money market yields on the slope of the money market curve has continued to explain DM bases relatively well, especially from a top-down perspective. Now, looking ahead, we do believe that central bank pricing and, of course, idiosyncratic factors will remain the dominant drivers of the bases. And if I drill further, what's your view on the Esther Sofer bases?

There has been a plethora of reverse yank issues of late. How is that expected to evolve, and how is that driving your basis view? You know, there is a lot packed into those simple questions that you ask.

I'll try to be brief, as I'm aware that we have continued talking for some time now on diverse topics. So, the Esther Sofer bases has been largely range-bound in recent weeks, roughly a 6 to 8 basis point band across the curve, with geopolitics and energy the main driver of day-to-day volatility. That wall has come down over the last few weeks, consistent with the ceasefire holding and a generally improving risk sentiment.

Now, in our view, absent a meaningful deterioration in sentiment, we think front-end bases should stay in relatively tight ranges, with some modest fighting bias driven by risk reward favoring an outperformance of Esther front-end yield compared to that of Sofer. Now, where we do see potential for this view to play out is the intermediate sector, and reverse yankee issuance is central to that expectation. Now, as you said, reverse yankee supply has risen sharply, with our estimate suggesting it as outpaced yankee issuance in February and March, which is not very typical when I look historically.

And May is also tracking well ahead of last year and prior year's total supply. We think the forces behind this are likely to persist. That is basically materially cheaper all-in euro funding versus dollars for these corporates.

There's an increased appetite to hedge currency and trade policy risk, and there are strong structural demands from European credit investors. Given these are expected to continue going forward, we expect the reverse yankee issuance to remain elevated and act as a technical widening impulse for the bases, particularly in the intermediate maturities. Just as a cautious note, the key near-term risk, in my view, is seasonality, as these yankee and reverse yankee issuance typically softens into the summer weeks, which could temper that widening pressure.

But although I believe that would be any correction of that would be temporary in nature. Thanks, Karenra. We packed a lot into this podcast, so I think we'll just wrap up here.

Thank you to all our listeners. Stay tuned for more updates on the fixed income space here at AnyRate, JPMorgan's global research podcast series. This communication is provided for information purposes only.

Please read the JPMorgan research reports related to this content for more information, including important disclosures. Copyright 2026, JPMorgan & Jason Company. All rights reserved.

This episode was recorded on May 15, 2026.