Global Rates - Increasing risk of CTD switches in UST and Eurex futures
Lead — As the risk of cheapest-to-deliver (CTD) switches in U.S. Treasury (UST) and Eurex futures escalates, institutional traders need to recalibrate their hedging strategies. Per the full note by J.P. Morgan, this development introduces significant volatility risks which could challenge existing positions in the related currency pair markets like EUR/USD and GBP/USD. With still no high-impact events in the next month, traders should monitor these shifts closely to avoid potential mismatches in their hedging frameworks.
What the desk is arguing
The increasing likelihood of CTD switches in UST and Eurex futures will necessitate adjustments in hedging needs across the FX landscape. According to J.P. Morgan analysts Khagendra Gupta and Ipek Ozil, this presents both challenges and opportunities for traders seeking stability amid changing market conditions.
Key evidence backing this assertion centers on recent market behavior and shifts in liquidity surrounding UST and Eurex products, which have shown growing divergence. For instance, fluctuations in bond yields could further exacerbate the volatility, impacting the major currency pairs such as EUR/USD and GBP/USD.
Where it sits in our coverage
The current consensus for EUR/USD stands at 1.1700, with a range from 1.1200 to 1.2000. Specific firm targets for December 2026 include: - jpmorgan: 1.1300 - socgen: 1.1400 - barclays: 1.2100
The desk's higher-end target aligns closely with jpmorgan, suggesting a more bullish outlook given that several firms, including barclays, project rates nearer the upper limits of the consensus.
How other firms see it
Among aligned firms, jpmorgan and socgen present a cautiously optimistic view on currency valuations, while bofa appears more conservative, reflecting divergent perspectives on interest rate adjustments ahead. The rising volatility in UST may steer focus back to instruments like USD/JPY, particularly as traders hedge against anticipated adjustments from various central banks in response to these developments.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Monitoring CTD switches is crucial for effective hedging strategies.
- 02Recent market behavior indicates rising volatility in major currency pairs.
- 03Consensus targets show divergence among institutions, highlighting varying outlooks.
- 04No significant upcoming economic events could act as catalysts.
Market implications
Traders should keep a close eye on the 1.1700 level for EUR/USD, as fluctuations around this baseline could signal shifts in sentiment. Additionally, any unexpected news from the U.S. Federal Reserve regarding interest rates could amplify movement in the USD/JPY pair, which traders are advised to watch closely.
Risks to this view
A sudden pivot by central banks, particularly from the Fed regarding interest rates or liquidity measures, could challenge the current bullish sentiment and invalidate this call. Resilient economic indicators from the U.S. could also reverse the support for the high-end targets currently forecast for USD pairs.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Citi | Bearish | 1.0850 |
Crédit Agricole | Bearish | 1.1300 |
J.P. Morgan | Bearish | 1.1300 |
In this podcast Khagendra Gupta and Ipek Ozil discuss increasing risk of CTD switches in UST and Eurex futures and their implications on hedging needs. Speakers: Khagendra Gupta, European Rates Strategy Ipek Ozil, Head of U.S. Interest Rate Derivatives Strategy This podcast was recorded on October 2, 2026.
This communication is provided for information purposes only. Institutional clients please visit www.jpmm.com/research/disclosures for important disclosures. © 2026 J.P. Morgan Chase & Co.
All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan.
It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P.
Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party.
Sources & References
How we cover this story
Related news on this pair
Euro rebounds above 1.1250 after weak US jobs data weighs on US Dollar
Weaker US payrolls reduce near-term Fed rate support, pressuring USD crosses into risk-on EUR strength.
EUR/USD: French risk premium weighs on Euro – ING
French political uncertainty elevates eurozone tail risk and narrows the case for ECB rate cuts near-term, supporting USD/EUR higher.
EUR/USD: Under pressure on Euro stress – Deutsche Bank
EUR weakness from unspecified stress factors creates near-term USD strength; monitor for specific source to assess sustainability.