What's takeaway 1 on Global Rates?

Expectations for elevated front-end rates in the Eurozone and UK following the BoE's November meeting.

What's takeaway 2 on Global Rates?

Intra-EMU spread tightening is anticipated amid macroeconomic adjustments and central bank influences.

What are the market implications for Global Rates?

Traders should monitor EUR/GBP levels closely, particularly around the projected consensus target of 1.075. Positioning signals may shift as new data emerges and could lead to adjustments ahead of the anticipated March 2026 rate decisions.

What are the risks to this view on Global Rates?

The primary risk to this bullish stance on EUR/GBP centers around underwhelming economic data that could prompt a pivot from the current monetary policy approach, particularly from the BoE and ECB. Any shifts in inflation forecasts or employment metrics could fundamentally alter market perceptions.

Global Rates: Front end EUR and UK rates, cross-market duration and intra-EMU spreads

What the desk is arguing

The desk highlights that significant shifts in Euro money market pricing and intra-EMU spread dynamics could lead to tighter credit conditions, thereby impacting both Eurozone and UK rates. Per the full note , the team from J.P. Morgan notes that the recent BoE meeting's outcomes could have ripple effects, particularly concerning how market participants price future rate hikes.

The commentary addresses expectations that UK rates may rise further if economic indicators fail to stabilize, impacting both local rate expectations and Euro crossings. The emphasis on higher front-end rates and adjusting positioning signals that market players must remain vigilant about broadening yield differentials between EMU member states and the UK.

Where it sits in our coverage

Our consensus target for EUR/GBP is set at 1.075, with expectations aligned with J.P. Morgan’s forecast of 1.10 for March 2026. The current range reflects market sentiment surrounding potential adjustments in monetary policy across Eurozone economies and the UK.

jpmorgan is projecting a higher target in line with our view, while bofa presents a more cautious outlook with a lower target of 1.04 for the same tenor. The position sits within the upper threshold of this range, suggesting a bullish outlook in light of recent data and central bank guidance.

How other firms see it

Firms like jpmorgan are aligned in their expectations for upward movement in EUR/GBP, reflecting confidence in prevailing economic conditions. Meanwhile, bofa stands contrary, anticipating lower pricing as they project a weaker outlook for the pair. Factors such as intra-EMU spreads and updates from the ECB will play a crucial role in shaping market dynamics.

Additionally, the trajectory of EUR/USD is expected to mirror the ECB rate path, influencing broader sentiment in the FX markets. Positioning around the GBP/USD could also be volatile as traders adjust to the forthcoming data releases related to UK economic performance, amplifying potential risks in currency trading.

Hi, and welcome to At Any Rate, J.P. Morgan's global research podcast series, where we take a look at some of the drivers behind the biggest trends and themes across fixed income currencies and commodity markets. I'm Francis Diamond, head of European rates strategy at J.P.

Morgan, and today I'm joined by my colleagues Kendra Gupta and Aditya Chaudhary to discuss several topics. We'll focus on new era money market pricing, duration and curve thought, intra-EMU spreads and UK rate markets post-November BOE meeting. So just to start off this week, seeing a decent repricing of ECB and BOE terminal rate expectations with now around 70 and 90 basis points of further ECB and BOE hikes priced respectively by the end of next year, and 10-year bund and gilt yields have sold off as well.

The catalyst for these moves has been a combination of rising TTF and UK natural gas prices, and also the main driver for the intermediate part of the curve has been the sell-off in dollar rates following the stronger-than-expected US CPI print for October. So Kendra, let's just focus a little bit on the front end of the euro curve and ECB expectations at a price. I mean, the curve looks like it pretty much pricing a 25-basis point hike at the December meeting and a total of 70 basis points ECB hikes by the end of next year.

So does that look reasonable in your view? Hello, Francis. Yes.

And as you mentioned, you know, that's the curve has repriced significantly higher this week with the terminal rates moving around, let's say, 16 to 18 basis point higher on the back of the US inflation data, there was some hawkish Fed speeches, and also rising energy prices. Now, although I would highlight that the beta of ECB pricing energy moves has been rather choppy or weak over the last few weeks, compared to what we had seen in the initial phase of the repricing. Our own expectation is for the ECB to hike 25 basis point each in December and March, and we see some risk of another hike after that.

So I think a peak pricing of around 60 to 65 basis point is kind of fair, but with current valuation of 70 basis point or so, being towards the upper end of our expectations. So I find front end yields marginally cheap, but I'm not rushing to fade these moves either. Yields can remain sticky around current levels for several weeks, as we had seen in October, and therefore we find that fading these via bullish option structures targeting the second half of 27 or 1H or 1Q28 sector to be more attractive.

Okay, so DT, let's shift to intermediate part of the curve and bond yields. So 10-year yields and bonds have sold off back to around the 340% level, 10-year treasury yields around 5.10. I mean, do you think there's any value in bonds on a cross-market basis at these levels?

And what about the broader German curve? How do you see this evolving going forward? Sure, Francis.

Yeah, like there has been a significant sell-off this week, and that's being a reminder of the point we have been stressing for a while, that the near-term euro area duration remains highly headline driven. This week, the move was driven primarily by a sharp repricing high on ECB tightening expectations, as Hagana mentioned, on combination of bounce-back in energy prices, and also beta to the sharp repricing high in the Fed tightening expectations. So yeah, like near-term, clearly things have gone a bit too far, and that's what our stance have been, which is a medium-term constructive outlook, which is still intact.

Like with market-based neutral rates now, again, pricing above 3%, like 3.10 or so, versus below 3% a week back. We continue to see scope for gradual drift lower over time, a bit in a less one-way fashion. And we also expect that the elevated correlation of euro rates to the US, which we saw this week, we expect to decline going forward, because the latest Fed repricing has been driven by more US-specific factors, with much more limited lead across the euro area.

We don't expect ECB to hike, because the Fed is hiking. And therefore, we continue to find the intermediate level of ease quite attractive for long-term investors. That has been a messaging for a while, and I think it stays a very high-conviction view we have, that 3%, any yield which is above 3% is a great level to lock from a medium-term point of view, if you have risk appetite to withstand the near-term volatility.

As you asked on the cross-market, we have been pushing this overweight Germany versus US stance, especially in the intermediate part of the curve. And after the sharp US underperformance of this week, we are neutralizing that. And on German curve, this week, we did see a bit of a bear flattening, given that it was a more ECB repricing driving the sell-off, which is a typical direction that you see in those type of moves.

Over the recent weeks, the 2-cent directionality has been much more choppier, particularly in rallies, as volatility has rotated between the front-end and the intermediate sectors. In our view, this reflects a market increasingly pricing a stickier front-end yields, especially when we are getting close to market pricing two hikes, or another 50 basis point hikes from ECB. And reaching that point, I think the market was saying Central Bank is going to go on a pause of the hiking cycle by March next year.

And in that world, you have the volatility shifting from the short-end to the intermediate part of the curve. And that's where you start seeing this bull flattening, bear steepening sort of dynamics. So given our view that ECB will deliver only 50 basis points of further hikes and pause after March 2027, even though market is pricing a bit more, in that world, we expect the directionality of the 2-cent curve to remain much more choppy as we transition from this bear flattening, bull steepening, to bull flattening, bear steepening dynamics.

So during those periods, depending on what's driving the market, is it the front-end macro, is it the front-end being anchored, that will drive the directionality, so it will remain choppy. Okay. So maybe if we just focus a little bit on intreme spreads and start again with France, given the focus of the previous weeks, I mean, if you look at the 10-year France-Germany spread, it does now seem to have stabilized around 150 basis point level.

Focus does seem to have shifted, at least for now, away from France. I mean, do you think this is now the steady state going forward? And what is your view on intreme spreads more broadly speaking?

Sure, Francis. Like, on France, like, clearly, the focus has moved away, and that's what we were saying, right? Like, you know, we had that flavor of the week or the few weeks around September and early October, and since then, I think the focus has shifted in other places, and clearly, the volatility has declined.

And that was one of our views, right? Like, we have been pushing that it's still early to position for the specific 2027 election outcomes, and I think we hold the view, like, we still have election, which is six months away, around six months away. And also, the 2027 budget process will ultimately prove less noisy than feared.

I think market is coming around to that consensus also, that the budget, some form of budget, even though it will be maybe a bit higher than five, but it will get approved, the risk of that not being approved is low. So, but that said, I think investors still believe that there will be a choppy headline environment in France over the coming months, especially around the election and the fiscal noise. And this, alongside still elevated rates, volatility will keep the market cautious in France, despite attractive valuations.

And this is what's reflected in our political uncertain premium price, where the sovereign risk, as we still see France around 50 basis point wide in the 10-year spread to Germany. And that, despite the recent tightening, it hasn't come down, because France hasn't outperformed yet. So, market is still assigning a decent amount of political risk in France, and it hasn't come down.

So, on the margin, that being said, on the margin, some of the external conditions we have been highlighting for a reversal in the French spread has become more supportive. For example, we are getting a bit more rates rally before this week's sell-off. And as we have mentioned before, widening happening in the rally is much less painful than widening happening in a sell-off.

So the technical, that driver is becoming a bit more positive, at least because we are sort of capping the ECB pricing because of the tightening of financing condition factor now there in place. And then, technicals also look somewhat cleaner. Like, if you look at our client service, overweight positioning has declined across euro area.

So that, overall, give us a bit more cautious constructive stance. But that being said, I believe that to get a more durable and sustained correction in French spreads, you still require a clearer progress on the domestic fiscal. So approval of 2027 budget will be positive.

And also some clarity on the political front, like, imagine if you get a centrist candidate who also is not doing well in the polls, will again be supportive for a further tightening of spreads. And along with that, a more persistent stabilization in volatility in technicals. So without that, a further tightening is likely, but to remain uneven and vulnerable to setbacks.

Now talking more broader spreads, they have been holding up quite well despite the choppy duration moves we have seen over the recent sessions. And it is a constructive signal and support the view that the tightening is not a purely rates beta move that I think we have seen over the past couple of weeks. So that, overall, we have been proposing this cautious constructive stance last week.

And I think this week's resilience of intramural spreads, despite the duration choppiness, is giving us a lot of comfort in that sense. So we are sticking with this cautious but constructive stance. And that being said, the risk still remains that there is a renewed energy and geopolitical risk or a potential US tech-led sell-off which spirals into a broader credit, which can reintroduce volatility and slow the refocus on carry trades.

So overall, I think this cautious optimism is what we are sticking with because the valuations are still attractive, but it's very hard to express it in a very tactical format. So Francis, let's move to UK. The BOE hike rates at the November meeting and struck a more hawkish tone and the market now prices over 90 basis point of further hikes by the end of next year.

Does this look reasonable to you? And what about the 10 years, which are now at 5.30 or above 5.30 now? Yeah.

So as you said, I mean, the messaging at the November NBC meeting alongside the hike was hawkish, not just with the delivery, but also with some of the language with the 8-1 vote split with the one vote for a 50 basis point hike rather than 25 basis point hike. So clearly, the BOE is shifting clearer to a stance that implies there's further hikes to come. I mean, it does feel like the BOE did keep the door open for December move.

I mean, the language noted the committee will adjust bank rate as necessary to meet the inflation target. And whilst I think there's some conditionality on energy and gas prices, there are other factors I think that are now much more visible the BOE to consider in terms of how much it tightens rates further from here in terms of strong GDP growth, the stickiness and service inflation and uncertainty around the level of slack in the economy. So I think the sense here is that there are definitely more hikes to come.

Whether that's September or not, I think it's still a bit unclear. I mean, it does feel like there's been some position squaring in the market alongside increasing gas prices that has driven front end to price at 20 basis points of rate hikes for December. I think we have to acknowledge there is still limited visibility on knock on effects from higher energy prices.

But I think if we do see gas prices rise again back to the highs at the end of October, or if you do get a large upside surprise in the October CPI print, that possibly does push to BOE to deliver a hike next month. I mean, you mentioned there the additional 90 basis points of further hikes priced by the end of next year. I mean, that does look high versus our current base case forecast of one more hike.

But I think risks are tilted towards probably the BOE delivering at least two or possibly three more, given the shift in their stance, as I said, given some of the other factors aside from energy prices that are more clearly warranting tightening. So I think if we got maybe 20 basis points or so additional risk premium priced into the market, given that the risk tilt in that direction, I don't think that looks particularly large at these sorts of levels. And as you mentioned, the maintaining yields have sold off around about 20 basis points over the last week.

They're close to 5.3%. We're sort of back at the end of October, the end of October levels, but we're still not back at the highs we saw a month or so ago. And I think it's the same message we've been flagging over recent months, yields look attractive for long-term investors.

However, we're cautious in the short term. We've seen the recent kind of yield chopping some volatility, but also would highlight if we look at the level of the two cents curve, it's probably somewhat 10 basis points flat versus high frequency drivers. So I think it's hard to be particularly, let's say, clear on duration at these sorts of levels.

So that's it from us. Thank you, Kigendre. Thank you, Titia.

Thank you for listening. Stay tuned for more updates on the fixed income space here on At Any Rates, JPMorgan's global research podcast series. This communication is provided for information purposes only.

Please read the JPMorgan research reports related to its content for information, including important disclosures. Copyright 2026, JPMorgan Chase & Co, All Rights Reserved. This episode was recorded on 13th of November, 2026.

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Global Rates: Front end EUR and UK rates, cross-market duration and intra-EMU spreads

What the desk is arguing

Where it sits in our coverage

How other firms see it

Sources & References

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