US Fixed Income Overview Splitting hairs-110516261

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 Strategy27 September 2024J P M O R G A N•Economics: The Conference Board labor market differential slipped from 15.9% to 12.6% in September, presaging a step up in the unemployment rate. We expect next Friday’s labor report to show nonfarm payrolls rose 125k while the unemployment rate inched up to 4.3%•Treasuries: If our above-consensus unemployment rate forecast come to fruition, this should bias Treasury yields lower in the near-term. We recommend expressing this bull-ish view with 3s/20s curve steepeners. T-bill supply is about to turn positive and we see $270bn of net issuance in the Oct-Nov period. Stay neutral TIPS but hold energy-hedged 5s/10s BE curve steepeners. A strike among ILA dockworkers appears likely which could disrupt supply chains and push up CPI inflation around the end of the year•Interest Rate Derivatives: Stay neutral on swap spreads outright, but initiate exposure to a steeper 7s/10s maturity matched swap spread curve. Turn tactically neutral on vola-tility on an outright basis ahead of next week’s data•Short Duration: Short-term credit investors still favor FRNs over fixed-rate tenors, despite last week’s rate cut. ON RRP balances and SOFR levels should rise on 9/30 due to quarter-end technicals but should normalize thereafter. MMFs continue to attract flows by offering superior yields compared to other liquidity products•Securitized Products: This week, mortgage spreads reversed most of the gains they saw heading into the FOMC. We recommend remaining modestly underweight the cur-rent coupon, preferring the wings of the stack. Lower mortgage rates should create a modest boost to existing home sales and refinancing activity, which is supportive of modest home price growth despite weaker seasonal patterns•Corporates: HG bond spreads tightened 4bp WoW to 105bp and are now just 6bp off their YTD tights as robust demand spurred by a steeper UST curve is met with heavy supply. However, valuations are tight limiting potential for a further rally•Near-term catalysts: Aug JOLTS (10/1), Sep ADP (10/2), Sep employment (10/4), Sep, CPI (10/10), Sep PPI (10/11) In the wake of the FOMC’s hawkish 50bp cut, fixed income markets have traded in a choppy manner over the past week as the data have come in mixed. While initial claims continue to come down from their summer highs, declining 4k to 218k for the prior week, the Confer-ence Board labor market differential fell from 15.9% to 12.6% over the month of September. The monthly correlation between this measure of labor slack and the unemployment rate can be noisy, but their levels are reasonably correlated over time, and this week’s print presages another step up in the unemployment rate (see US: Labor market concerns stand out in Sep confidence survey, Abiel Reinhart, 9/24/24). Thus as we look to next