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J.P. Morgan on Global Rates: Lean Into Bullish USD, Neutral Duration — 10Y UST 4.85%

Posted on by Eben@CANSLIM Research
Eben@CANSLIM Research's avatarEben@CANSLIM Research

J.P. Morgan projects the Federal Reserve will hike rates by 25bp in December 2026, lifting the funds rate target range to 3.75–4.00%, with 2-year and 10-year Treasury yields reaching 4.30% and 4.85% by year-end 2026. The bank stays neutral on outright duration, initiates a 50:50 weighted 10s/20s/30s belly-cheapening butterfly, and leans back into a bullish dollar view it has held since mid-May. The two dominant risks — energy prices and the Fed — are keeping uncertainty high and positioning low across emerging markets.

Key Takeaways

  • J.P. Morgan forecasts a single 25bp Fed hike in December 2026, taking the funds rate target range to 3.75–4.00%, with 2-year Treasury yields at 4.30% and 10-year yields at 4.85% by YE26.
  • The bank initiates a 50:50 weighted 10s/20s/30s belly-cheapening butterfly, selling the 20-year sector against a 50:50 combination of 10s and 30s, as the 10s/20s/30s butterfly trades at its richest levels since April 2025.
  • J.P. Morgan leans into a bullish USD view maintained since mid-May, arguing cheap dollar valuations and US resiliency make a bearish dollar view “without merit” and a range-bound outlook more defensible.
  • The bank keeps an overweight EM FX stance, market-weight EM rates and market-weight EM credit, with a $14,800/mt 4Q26 copper target and overshoot potential.
  • J.P. Morgan now expects the US Treasury to maintain current auction sizes through August 2027 (versus February 2027 previously), with a $2.020tn FY26 deficit and $1.960tn in FY27.

Lead Analysis: What J.P. Morgan’s Global Macro Outlook Says

In a report titled “Global Macro Outlook and Strategy — Global Rates, Commodities, Currencies and Emerging Markets,” J.P. Morgan’s Global Markets Strategy team, led by Luis Oganes, argues that recent data suggests current policy may not be restrictive, leaving current money market Fed pricing warranted. The report, dated 8 September 2026, sees longer-term yields broadly in line with fundamentals and expects rising global policy rates to keep yields anchored at higher levels.

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