Global Rates – And now my fears, they come to me in threes
The desk believes that the recent U.S. employment data reflects a stabilized labor market, which may limit the Federal Reserve's policy adjustments in the near term. Per the full note from J.P. Morgan, while the April payrolls report was mixed, it indicates a firming in employment growth, suggesting that the Fed is likely to maintain its current stance. With the market pricing in a flat to modestly upward sloped money market curve, the implications for dollar strength appear muted. This perspective aligns with our consensus target of 1.075 for the EUR/USD pair, as we anticipate limited catalysts for significant movement in the immediate future.
What the desk is arguing
J.P. Morgan's discussion emphasizes that the April employment data will drive critical shifts in both FX and rates markets. They assert that strong employment figures could lead to a reassessment of monetary policy expectations, producing upward pressure on yields and influencing currency pairs dramatically.
Furthermore, the strategists examine the implications of the Treasury's upcoming refunding announcement, indicating that the market may react sharply to any adjustments in issuance size or structure. This interplay between jobs data and Treasury actions underlines the interconnected nature of the rates and FX landscape, suggesting that traders should be vigilant in monitoring these developments.
Where it sits in our coverage
Our current consensus target is set at 1.075, reflecting our view that rates will hover within this zone amid ongoing labor market assessments. This position aligns with J.P. Morgan's outlook of a potential rise in yields and suggests a calibrated response to the forthcoming data. The firm spread observed supports a tight range between 1.04 and 1.12, indicating limited room for sharp fluctuations unless significant data surprises occur.
Specific firms have published differing targets: - JPMorgan: 1.10, Mar26 - Barclays: 1.08, Mar26 - Goldman Sachs: 1.12, Mar26 These views capture a spectrum of sentiment, reflecting nuanced expectations following the employment data and its anticipated impact on monetary policy.
How other firms see it
In assessing the broader landscape, some firms align closely with J.P. Morgan's insights while others diverge notably. - BofA: 1.04, contrary to J.P. Morgan's more bullish stance, suggesting a more cautious view on employment and its impact on yields. - Deutsche Bank: maintains a neutral position, anticipating less volatility than currently projected by J.P. Morgan. Overall, market participants should prepare for potential volatility driven by labor data outcomes and Treasury refinancing strategies.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01April employment report pivotal for FX and rates markets
- 02Treasury's refunding announcement adds layer of uncertainty
- 03Market primed for volatility depending on labor market signals
Market implications
Increased wages or lower unemployment may push yields higher, favoring USD strength against other currencies. Conversely, lackluster employment data could result in a flight to safety, benefiting lower-yielding currencies.
Risks to this view
The primary risks include unexpected employment data leading to drastic market reactions, potential policy shifts by the Federal Reserve, and geopolitical events that could overshadow domestic data releases.
Hello and welcome to J.P. Morgan's At Any Rate podcast. I'm Meera Chandan, co-head of Global FX Strategy at J.P.
Morgan, joined today by Jay Barry, head of Global Rates Strategy. So, you know, obviously the back and forth around the conflict with Iran continues. There's, I don't think, a lot of value to add there other than to say there's some progress on talks, but without much action, without much flow.
So it's wait and see. We'll set that aside for now, but it looks like the market really wants to believe that there is, you know, progression, progress going on there. So let's talk about things we can actually wrap our head around more tangibly.
We'll type right into payrolls, obviously. Jay, let me get your thoughts on that. It seems like a mixed report with perhaps something for everyone.
Do you agree with that? And how do you think this should impact Fed pricing? Hey Meera, thanks.
I do think it's a mixed report, but overall it just does indicate that the labor market has stabilized here, right? So the unemployment rate was clearly unchanged. And yes, I know on an unrounded basis, it ticked up a little bit, but it's been bumping around in a relatively narrow range for the past number of months.
And I think the household data were a bit more of a mixed bag as well. So as you said, something a little bit of something for everyone right there, but alongside the unemployment rate remaining pretty stable, I think it is pretty telling that you have seen the pace of labor market growth actually firm up here. And on average, you know, we've been experiencing a bump in employment growth for the first four months of the year relative to where we averaged through 2025 on both a total basis and a private basis.
So I think that is a healthy sign. And when you couple it with what you've seen with the more high frequency data, not just initial claims, but the fact that continuing claims are basically at more than two year lows right now, I think that's a good sign here that, you know, labor markets are, you know, achieving some stasis. But it is interesting to me that on the day of the report today, you know, yields have actually declined and the curve has steepened just a little bit in response to this data, but perhaps because we're just unwinding the selloff that we had earlier in the week after the ADP data and sort of leaving it neutral.
So the implications for Fed policy, in my mind, are really limited. And if anything, markets have been pricing the Fed firmly on hold for the next few meetings, with small probability of hikes being priced into 2027. And I think that makes sense.
If what we learned from the FOMC meeting last week is true, which is we're likely to see risk of a guidance change back to a neutral balance of risks at the next meeting in June, barring anything unforeseen, then it justifies having a money market curve, which is flat to the most modest of upward slope. And if I look at this week's Fed speak as well, even before the data today, and I look at our Hawk Dove score index for the Fed, it has trended a little bit more hawkish over the last few weeks as well. So I think the rates implications are limited given how we've priced the Fed.
And, you know, I think it's funny that yields have actually declined this week, all considered. And you said that we don't have any unusual insight into the conflict. The unfortunate thing is that oil remains the most important factor driving rates markets and other asset classes.
And the correlation between oil and rates reasserted itself this week after taking a backseat to the Fed last week, unfortunately. That's not really going to stop, is it? But it's interesting that the Fed commentary has been more on the hawkish side, isn't it?
It's in follow through of the meeting that leaned hawkish as well. Yeah, I mean, I think so. And it's interesting that certainly, you know, you're making the case here that the Fed is just on permahold, as mostly everybody on the committee has moved to kind of the point to expect that you've got both of the sides of the dual mandate in conflict here, right?
The unemployment rate is still somewhat, I think, perhaps above where they'd like it to be, but becoming more stable. And at the same time, clearly, and we'll see this with the inflation data next week, we're expecting a pretty firm reading on core CPI. And how it translates through the PCE is that with PCE sitting above 3%, there's no way the Fed can normalize here.
So it's just ratifying that expectation and probably means that what we saw in the dots back in March is that that lean toward a single cut for this year is likely to go away. You know, I think from our perspective, it justifies, you know, yield remaining at the upper end of the range that we have held here since the conflict broke out. But maybe if I can just pivot it to you and talk about how the dollar reacted to this news, because clearly, I'm looking at currencies today.
And it seems like there was a bit more of a dovish reaction, broadly speaking, to the data today as well. Yeah, it was certainly the dollar weekend in the aftermath of the report. But I think it already was, you know, going ahead with a weaker tone.
I think any kind of signs that we have, you know, of maybe a step closer to being to the conflict resolution, the market's reacting in an outsized manner. And the price action does suggest the market wants to be short the dollar. But, you know, if I take a step back, what I would say here is that, you know, as far as the dollar is concerned, and, you know, if you think about what conditions led us to substantial dollar weakness last year, there were two elements to that dollar weaker trade.
One was that U.S. data was softening, particularly labor markets. So actually, a good part of the dollar weakness you got was coming simultaneously as the headline NFP number was falling, was softening. And at the same time, of course, it was the rest of the world are performing on growth as well and doing particularly well on growth, especially Europe, because this was like right after the fiscal announcement.
You also have this equity rotation story, which was quite active last year, which was moving away from the U.S. to the rest of the world where U.S. equity started underperforming the rest of the world. And if I were to set the conflict aside right now, the terms of trade boosts that the U.S. is getting from that, you know, what's striking to me is that neither of these conditions are really being met anymore. European data has cratered, so you can't really call it a U.S. sort of moderation story.
It's actually U.S. exceptionalism almost because, and more so because Europe is lagging quite a bit. And that, you know, it's not just activity data that's soft. It's also the equity markets are lagging quite a bit.
If I look at the U.S. equity rotation story, we were first rotating away from the U.S. Now, actually, U.S. equity returns are outpacing the rest of the world. Maybe only a couple of Asian countries are actually outperforming on that front.
But Europe is again, once again, the pure laggard there. So to me, you know, some of the signs of dollar weakness are fading here. And I thought the payrolls number today was kind of interesting.
And the reason I said it was something for everybody is, you know, the fact that the headline payrolls print actually, you know, surprised to the upside, I think is interesting. And I do wonder, you know, at this point, I guess the implications on wage growth are probably softer, but I do wonder, you know, at what point, and if at some point down the road, we could actually have the market put in possibility of hikes more decisively. I think there's a long road between now and then, but just the fact that we're moving away from this asymmetric dovish bias from the Fed to perhaps a more balanced distribution, and this is what we saw in the dissent.
I think that's making me a bit more concerned that we could actually see dollar strength in the pipeline. I think it's premature for that right now. So I think the first step, if we do get a resolution or at least partial normalization of the conflict is still dollar weaker.
But I think after that, you know, what I've been thinking about quite a bit, and I think the payrolls number kind of suggests this is if U.S. growth momentum is kind of bottomed out here, and U.S. some shades of exceptionalism are coming back, then, you know, it's a time to turn it around for the dollar. So I think unfortunately, we're going back to, you know, second half of 25, and we're seeing the dollar consolidate, you know, maybe it strengthens versus the low yielders, but actually, you have to be a lot more selective when it comes to dollar weakness and just focus on the high yielders there. So that's pretty much been our approach as well at this point.
Yeah, and I guess that's not too kind of dissimilar to our rates view here where, you know, we think we're consolidating yields here broadly at the upper end of the range that we've seen with the risk over the balance of the year that there's a modest uptick higher, as you said, as like the distribution to the right side opens, and if we're right, as our economics team projects that the labor markets will actually resume tightening later this year, and to me, you know, the point that you made is a really important one, Mira, that the U rate has basically been stuck in this range between 4.3 and 4.5% for the last nine months. And if we see it starting to kind of break downward, then I think markets will be more likely to start to price and hikes and have important implications for your dollar view as well as for rates here as well. Okay, so let's talk about a different topic, Jay, let's move to the refunding.
Um, so clearly, no changes to the auction sizes, no changes to the guidance, was there anything in the teabag charges that was interesting? And what are you thinking about issuance from here? Yeah, it was a pretty uneventful refunding overall, as you said, with auction sizes unchanged, and the markets had expected that.
But in contrast, Mira, both ourselves and I think the markets had expected the Treasury Department to make some modest change to its guidance. So I think as most of our listeners and you know, the Treasury has had the same forward guidance for the last two years saying that it anticipates maintaining new nominal coupon and FRN auction sizes for at least the next several quarters. We thought the at least portion of that guidance would need to go in large part because I think our view and this is I think out there as well is that while the Treasury is well financed for fiscal year 26, which ends at the end of September, as we move into fiscal 27 and beyond, there's a pretty large financing gap that will need to be addressed because of maturity starting to decline from there.
And we continue to expect coupon issuance increases in early 2027 at the February refunding. And it seems like the consensus there as well. And looking below the surface in the minutes of the teabag meeting, the teabag had discussed potential changes to the forward guidance, but ultimately nothing was done.
So I think this raises the risk that you may see a wholesale reshuffle of this guidance at the August refunding. Because certainly, if you do need to start to slowly communicate to markets, that the conditions are changing and that you're on the verge of increasing duration supply, then you should let the markets know quarters in advance, which is what the Treasury likes to do. So to me, that was the most important of what we learned out of this meeting is that below the surface, there was clearly a debate where it seemed like teabag was willing to consider a guidance change while the Treasury Department wasn't.
And we know that the Treasury Department has been very focused on lowering long-term yields. So to the extent that this change in guidance may raise them, that could have influenced it, but I guess we'll have to see it the next refunding in August. The only other thing notable that came out of the refunding, I think that is important from a macro perspective is that I think the Treasury Department has been sitting here holding enough cash to withstand loss of market access for a week.
And this has been in place for over the last decade, its own liquidity buffer, low probability, but high risk that if it ever lost access to the markets for more than a week, that it wouldn't have enough cash to meet its obligations and technically default. Now, it's just kind of going back to basics and looking at ways to say, listen, we have this cash, we're not earning anything on it, can we take a part of it and actually earn something while still maintaining, remaining true to our liquidity buffer? And it was interesting that TBAC presented on this and made the case that of the five days in cash it's having on hand, maybe days four and day five, it can invest into the repo market.
And it's got modest implications there because it creates some modest income for the Treasury Department, but only really in environments where Treasury repo rates are greater than the interest on reserves. Because if Treasury goes and takes its cash and invest it somewhere, it brings the TGA down, reserves are buoyed a little bit higher. And the net of that is from a consolidated perspective that Treasury needs to be earning more than the Fed is paying.
But it does, I think on margin ratify some of what we've seen this year, which is, despite all the volatility we've had, funding conditions have remained pretty robust because the Fed has been committed to an ample reserve regime. I think because there's been an increase in intermediation from the dealer community. And if it's something that the Treasury moves forward with over time, and it will take a while, then it means that you're probably going to trim the tails on the upside risk to secured funding rates around statement dates and around Treasury settlement dates.
So we got nothing, but under the surface, I think we're prepping for a change in guidance, which we'll see more of. And if anything, I think this is supporting a front end, which is just going to indicate that the sort of balance sheet and financing is pretty abundant in the Treasury market as well. But that aside, Meera, a lot to say about not a lot happening with the refunding.
If we can just pivot back to currencies here and your high conviction views on FX, certainly last week, I think you kind of changed view and we're thinking about the dollar a little bit differently, but what's changed week over week for you here? Yeah, I'd say, look, I mean, if my initial comments on the dollar sounded a bit sort of low conviction, that's exactly right, because I do think there's a lot more moving parts to the broad dollar view. There's a short term sort of resolution possibility versus these medium term US exceptionalism shades coming back.
But I think that's not to say that it's low conviction everywhere in FX. I think there are high conviction views out there. To me, very first and foremost, I think it's all about carry.
Even if we get that normalization, it's going to be a partial one. Energy prices will stay sticky. Inflation will stay sticky.
And that is usually an environment in which carry actually does well, because if you've got inflation higher, central banks keeping sort of leaning more hawkish and on margin. And all that's happening to growth is going from above trend to trend. That's an environment where people do search for carry.
And I think in G10, Australia and Nokia, Norway are probably the most compelling bullish stories in my mind. They're both at an inflection point. Both are energy exporters.
They're high yielders within the DM space. Carry is now finally above the dollar for the first time in almost a decade. Carry on the crosses within their own individual blocks, like if I compare Australia to New Zealand or Norway to Sweden or Euro, is also sort of at multi-year, more than decade long highs.
So it's looking very attractive. And the underlying sort of growth narratives are pretty strong as well. Central banks have been hawkish.
So to me, that still screens as a pretty important theme. And, you know, I would sort of say that the others in DM, whether it's the likes of Sweden or Euro are probably, you know, best used as funders there. And obviously, if I take a step back, you know, globally, not just DM lens, then obviously Latam, our EM strategist find is quite attractive from a carry standpoint.
The second thing I'll say is using Euro as a funder, as I've discussed already, it's a laggard. It's not just about being a laggard in growth. It's rather on equity returns as well.
And it's just overall, even versus Asia, I think lagging quite a bit. So, you know, very much contrast to what China is doing, letting the yuan strengthens. So I do think that is a case we made for using Euro as a funder and not just for carry, not just for the high yielders, but also versus, you know, sort of select, I guess, rotation trades away from the Euro, but more towards APAC.
And obviously, Euro-Aussie is one that fits that bill quite cleanly. So we do like that still. It's also got an element of export or importer to it.
And third, you know, I spoke about being selectively bearish the dollar. And, you know, and one way to do that is also, by the way, to use sort of carry efficient proxies to be bearish the dollar. So things like the Canadian dollar, for example, CAD, using that as a funder, I think is a pretty interesting theme and sort of reinforced also by the week labor market report that we got out of Canada today, just sort of tells you that, you know, very much like the Euro, it's going to be a bit of a laggard here.
It got that temporary boost from terms of trade. And that's still, you know, like I said, it's going to last. But, you know, in contrast to what you see for Norway and Australia and some of these lifetime high yielders, where you also have the carry, I think it puts it at quite a disadvantage.
So we do like using CAD as a funder there as well. And Jay, do you want to wrap up then with maybe the highest conviction used for you on the interest rate side? Yeah, sure.
I'd be happy to. And it's funny you say low conviction. The challenge, of course, Mira, is still the volatility in oil prices that we're all aware of.
But I think if you look at our forecasts and rates globally, there's probably two distinct themes to sort of really hone in on here. And you talk about, you know, somewhat about U.S. exceptionalism. I look at our forecasts and certainly, as I mentioned before, our U.S. forecasts have treasury yields moving modestly higher here between now and the end of the year.
And we're looking for 10-year yields to move up towards four and a half percent, which is the upper end of the range that we have seen here in as yields have arguably swung in ranges between call it 390 and four and a half percent for the past year. And we've kind of got that view, of course, because as we mentioned, we see the Fed on hold through the forecast horizon. But that as we do roll later into the year, if we're right, and labor markets recouple with capital expenditures, that markets may start to price in a higher likelihood of a Fed that takes back some of these diseases that we saw late last year.
And on the flip side, I look at it clearly in Europe, and we were forecasting lower German yields by the end of the year, even with an ECB that is set, we think, to hike twice. And that situation is obviously fluid. And there's some medium-term perspective here that there's value in the intermediate sector of the German curve around 3%, which is where 10-year bonds are trading right now, because if trend growth rates haven't changed terribly in the Eurozone or in Germany, and productivity growth remains relatively weak in an environment where we're not sort of under the same fiscal and term premium pressure that we are in the U.S. that makes the case there.
So the medium-term theme is higher U.S. yields modestly from here back up to the upper end of the ranges, and in core Europe and Germany, medium-term scope for rates to move lower, although we're not actively thinking that this can sort of happen over the nearer term, given the volatility that we're experiencing. But I think this has been a good discussion of everything that's happened over the past week, Mira. So thanks for joining the podcast, and I think we'll leave it here.
Stay tuned for more episodes of At Any Rate, J.P. Morgan's global research podcast series. This communication is provided for information purposes only.
Please read J.P. Morgan Research Reports related to its contents for more information, including important disclosures. Copyright 2026, J.P.
Morgan Chase & Co., all rights reserved. This episode was recorded on May 8, 2026.
Sources & References
How we cover this story