US Fixed Income Overview Stuck here in the middle with you-110319151

1Phoebe White AC (1-212) 834-3092phoebe.a.white@jpmorgan.comJ.P. Morgan Securities LLCLiam L Wash (1-212) 834-5230liam.wash@jpmchase.comJ.P. Morgan Securities LLCNorth America Fixed Income Strategy13 September 2024J P M O R G A N•Economics: Core CPI surprised to the upside, rising 0.28% in August supported by a jump in OER. We continue to expect the Fed will lower the policy rate by 50bp at next week’s FOMC meeting. We expect the median dots will show 100bp of easing by YE24 and another 150bp of easing in 2025•Treasuries: We discuss historical precedents for more aggressive action than what mar-kets were pricing in, but even if the Fed only delivers a 25bp cut, we expect Chair Powell to keep his dovish tone, limiting the ability for yields to reverse significantly higher. This backdrop skews dovish and we think easing will be front-loaded: hold 3s/30s steepeners as a core bullish view. in TIPS, add tactical 5s/10s breakeven curve steepeners•Interest Rate Derivatives: The magnitude of next week’s rate cut remains uncertain, and market pricing is squarely in the middle of a 25bp and a 50bp cut. We favor asym-metric ways of positioning for both higher and lower yields in the short term. Condition-al 1s/3s bear flatteners and long WNZ basis positions are attractive as bearish trades, while long USZ basis positions and bullish 2s/10s steepeners are attractive as bullish trades. Stay long volatility tactically, but we favor pairing long vol positions with longs in equities. Remain neutral on swap spreads•Short Duration: Bank CP/CD spreads should remain stable as MMF reform deadline approaches. With an upcoming easing cycle, flows into low-duration bond funds are likely as investors look to extend. Higher low-duration bond fund AUMs should not occur at the expense of negative growth in MMF AUMs.•Securitized Products: Mortgages are at their YTD tights thanks to data pointing to the start of the cutting cycle and modestly declining volatility. Fed Vice Chair Barr’s speech on Basel 3 Endgame highlighted potential changes to AOCI and mortgage loan risk weights, with the later likely to put downward pressure on securitization•Corporates: HG spreads should remain rangebound as fundamentals improve along-side falling rates. Stronger returns should support technicals. Risks revolve around the trajectory of growth and the durability of demand at lower yields•Near-term catalysts: Aug retail sales (9/17), Sep FOMC meeting (9/17-9/18), Sep ADP (10/2), Sep employment (10/4)Over the past week, the Treasury curve steepened further and mortgages outperformed cor-porates as the start of the easing cycle draws nearer. However, markets continue to debate whether the Fed’s first move will be a 25bp or 50bp ease. The odds of a 50bp cut fluctuated considerably this week, reaching a low of 10% in the wake of the firmer-than-expected August CPI report on Wednesday before closing Friday pricing in a more than 45% chance following the release of Wall Street Journal and Financial