JPM U S Fixed Income Ma 2024-06-15 4726101

J P M O R G A N North America Fixed Income
Strategy
14 June 2024
U.S. Fixed Income Markets Weekly
Cross Sector P. White, L. Wash, H. Cunningham Fixed Income Strategy

Treasury yields declined and corporate credit spreads widened following soft Jay Barry AC
inflation data, while rising international political uncertainty sparked concerns over (1-212) 834-4951
wider spillovers. We believe the reaction in US markets is likely overdone. We turn john.f.barry@jpmorgan.com
tactically bearish on duration while we think there is room for corporate spreads to Srini Ramaswamy AC
narrow. (1-415) 315-8117
srini.ramaswamy@jpmorgan.com
Governments J. Barry, P. White, A. Borges, L. Wash J.P. Morgan Securities LLC
We turn tactically bearish in the 5-year sector: the first cut is still months away, yields
are at multi-month lows, OAT/bund spreads are priced for a more negative outcome,
and next week’s retail sales are likely to show a healthy bounce. The current
environment still supports carry-seeking behavior, but risk adjusted-carry is low and
the 5-year sector is near the richest levels on the fly YTD: take profits on 3s/5s/7s
belly-richening butterflies. Add 4.75% Feb 37s / 4.5% Aug 39s steepeners for RV. We
expand our analysis of CFTC data and consider the evolution of open interest
concentration: the top 4 investors share of FV and UXY contracts offers a meaningful
and consistent near term contrarian signal. The front end of the inflation curve appears
cheap: add 1Y1Y inflation swap longs.
Interest Rate Derivatives S. Ramaswamy, I. Ozil, P. Michaelides, A. Parikh
French politics roiled European sovereign debt markets this week, but the narrowing
in UST spreads is likely overdone and unlikely to be sustained. Maintain a spread
widening bias across the curve, and especially at the front end. Soft inflation data and
Fed comments are bringing stability in policy expectations, which is bearish for
gamma - sell 6Mx10Y volatility versus a short in Greens. On the swap yield curve,
initiate longs in 3s and 5s versus Blues and 12Mx3M. Buy Feb 37s versus USU4,
outright and/or on a spread switch basis.
Short-Term Fixed Income T. Ho, P. Vohra, H. Cunningham
With fewer rate cuts expected for this year, MMF balances should continue to remain
elevated. We expect SOFR to trend higher around June-end and see ON RRP balance Contents
move up on the spot date. Bank CP/CD spreads should stay near current levels, but Summary of Views 3
technicals has the potential to drive spreads wider, on the margin. We provide an MMF US Fixed Income Overview 4
Economics 12
holdings update.
Treasuries 16
MBS and CMBS J. Sim TIPS Strategy 25
Mortgages continue to trade directionally with rates, and remain fairly valued. We Interest Rate Derivatives 31
Short-Term Fixed Income 46
quantify how much of the outstanding SASB universe has fixed the nonrecoverability
Agency MBS 51
related interest shortfall recovery priority loophole in the recovery waterfall language. RMBS Credit Commentary 64
CMBS Weekly 67
ABS A. Sze
Asset-backed Securities 78
ABS spreads mostly held firm this past week as autos saw spreads soften a touch on Corporates 84
supply pressure. High Yield 92
Municipal Markets Weekly 96
Emerging Markets 133
Forecast & Analytics 137
Market Movers Calendar 144
See page 145 for analyst certification and important disclosures.

J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
www.jpmorganmarkets.com
Jay Barry AC (1-212) 834-4951 North America Fixed Income
john.f.barry@jpmorgan.com Strategy
JPMORGAN
J.P. Morgan Securities LLC U.S. Fixed Income Markets Weekly
Srini Ramaswamy AC (1-415) 315-8117 14 June 2024
J.P. Morgan Securities LLC
Investment-Grade Corporates E. Beinstein, S. Doctor, N. Rosenbaum, S. Mantri

HG spreads have widened off the YTD tights on elevated macro risks from European elections.
Positive factors include strong equity markets, light supply and still strong demand. However,
tight valuations and declining yields leave limited room for tightening.
High Yield N. Jantzen, T. Linares
High-yield bond spreads (353bp) are now 18bp above early May’s post GFC low, whereas yields
(7.96%) rose 3bp off an intra-week low since April amid falling rates. Meanwhile, repricing
activity in the leveraged loan market totaling $195bn in 2Q is already the most active quarter on
record.
Municipals P. DeGroot, Y. Tian, R.Gargan
Tax-exempts lagged heading into another shortened week with slightly above trend supply.
Investors may find value if the UST market retraces a portion of this week’s rally, as ETF liquidity
remains essential amidst still heavy secondary balances.
Emerging Markets L. Oganes
In EM fixed income, we are MW GBI-EM local rates, CEMBI and EMBIGD. EM bond flows
were -$1.5bn (-0.40% of weekly AUM, down from +$596mn).
2
JPMORGAN
Srini Ramaswamy AC (1-415) 315-8117 14 June 2024
Summary of Views
SECTOR CURRENT LEVEL YEAR END TARGET COMMENT
Jun 14, 2024 Dec 31, 2024
Treasuries
2-year yield (%) 4.68 4.60 Turn tactically short 5-year Treasuries.
10-year yield (%) 4.21 4.40 Maintain 5s/30s steepeners and 75:6 weighted 5s/10s/30s belly-cheapening butterflies to position for higher term premium
Technical Analysis Mid-year target
2-year yield (%) 4.68 4.70 Look for range action into early-summer as it continues to consolidate the budding longer-term bull cycle
10-year yield (%) 4.21 4.40 We expect more sideways action into summer and the longer end to lag as the really resumes in 2H24
TIPS
10-year TIPS breakevens (bp) 221 230 Add 1Y1Y inflation swap longs
Interest Rate Derivatives Mid-year target
2-year SOFR swap spread (bp) -14 -4 French politics roiled European sovereign debt markets this week, but the narrowing in UST spreads is likely overdone and
5-year SOFR swap spread (bp) -27 -20 unlikely to be sustained. Maintain a spread widening bias across the curve, and especially at the front end. Soft inflation data
and Fed comments are bringing stability in policy expectations, which is bearish for gamma - sell 6Mx10Y volatility versus a
10-year SOFR swap spread (bp) -41 -34
short in Greens. On the swap yield curve, initiate longs in 3s and 5s versus Blues and 12Mx3M. Buy Feb 37s versus USU4,
30-year SOFR swap spread (bp) -77 -77 outright and/or on a spread switch basis.
Agency MBS
FNMA 30yr 6% Front Tsy OAS (bp) 28 30 Mortgages continue to trade directionally with rates, and remain fairly valued
RMBS Credit
CRT M1B/M2 (DM@10CPR) 1MS + 168bp 1MS + 250bp Mortgage credit spreads moved tighter before Wednesday but softer-than-expected May CPI further drove the risk-on
RMBS 2.0 PT (6s) 0-28bk of TBA 1-16bk of TBA sentiment. New issue saw the AAA in VERUS 24-5 price at the YTD tights of 120bp I to 25C/4-year call, but there remains
significant difference in pricing spreads across programs in the new issue. AAA in the ADMT 24-NQM3 priced 30bp wider
AAA Non-QM I + 120bp I + 185bp
than the VERUS AAA at 150 I to same structuring assumptions.
ABS
3-year AAA card ABS to Treasuries (bp) 48 45 Despite the recent spread rally, ABS remains relatively cheap to corporates; however, it is tough to make a case for material
spread tightening from hereon given the macro uncertainty still ahead in 2024
CMBS Mid-year target
10yr conduit CMBS LCF AAA 98 125 LCF AAAs look Freddie K A2 spreads look about fair to their corporate and mortgage comps.
10yr Freddie K A2 48 60
Investment-grade corporates
JULI spread to Treasuries (bp) 103 95 The macro backdrop continues to be very supportive but lower yields may be a near term headwind to tighter spreads.
High yield
Domestic HY Index spread to worst (bp) 349 380 We believe HY spreads will be supported in the near-term by low near-term recession risks and improving capital market
access into 2Q.
Credit Derivatives
High Grade (bp) 51 50 European CDS Indices underperformed their US counterparts over the past week with European markets rattled by the snap
High Yield $106.7/333bp 350 French elections while recent US data releases trended in the right direction
Short-term fixed income
EFFR (%) 5.33 4.60 Continued increases in money market supply should result in T-bills/OIS and CPCD/OIS spreads to widen on the margin.
SOFR (%) 5.31 4.60 Spread curves should steepen. SOFR is biased wider, while EFFR holds steady.
CLOs
US CLO Primary AAA (Tier 1, bp) 140 SOFR + 130 CLO new issue T1 AAAs recently reached our MY spread forecast of 140bp in the US. Our 130bp YE target may well be met
sooner on strong technicals and bid for floating rates.
Municipals
10-year muni yield (%) 2.79 2.60 Finding sustained market consensus while navigating the end of the tightening cycle may be difficult, but we suggest playing
30-year muni yield (%) 3.69 3.55 the long game, and buying municipal bonds with a longer term perspective, particularly in periods where Treasuries sell-off.
We suggest adding idiosyncratic municipal risk on market weakness, with the belief that bouts of illiquidity should be viewed
as an opportunity, given that a cycle turn is in the offing.
Emerging Markets
Hard currency: EMBIG Div (bp) 390 400 MW EMBIGD
Hard currency: CEMBI Broad (bp) 224 220 MW CEMBI Br
Local currency: GBI-EM yield (%) 6.60% 5.58% MW local rates
Source: J.P. Morgan
3
Phoebe White AC (1-212) 834-3092 Holly Cunningham (1-212) 834-5683 North America Fixed Income
phoebe.a.white@jpmorgan.com holly.cunningham@jpmorgan.com Strategy
JPMORGAN
J.P. Morgan Securities LLC J.P. Morgan Securities LLC U.S. Fixed Income Markets Weekly
Liam L Wash (1-212) 834-5230 14 June 2024
liam.wash@jpmchase.com
US Fixed Income Overview

Cruel summer
• Economics: Headline CPI was flat for the month of May while core rose 0.16%, led in
part by a reduction in the core services ex-housing component. We are tracking core PCE
rose 0.14% in May, leaving the oya rate at 2.6%. We forecast retail sales rose 0.4% in
May, with the control group up 0.5% over the month
• Treasuries: We turn tactically bearish in the 5-year sector: the first cut is still months
away, yields are at multi-month lows, OAT/bund spreads are priced for a more negative
outcome, and next week’s retail sales are likely to show a healthy bounce. The current
environment still supports carry-seeking behavior, but risk adjusted-carry is low and the
5-year sector is near the richest levels on the fly YTD. The front end of the inflation curve
appears cheap: add 1Y1Y inflation swap longs
• Interest Rate Derivatives: Swap spreads were most impacted by European develop-
ments this week, narrowing 2-3bp across much of the curve and by as much as 5bp in
the 20-year sector. We believe the reaction in US markets is likely overdone and unlikely
to be sustained. In addition, our outlook for the Fed balance sheet shows Reserves stay-
ing comfortably above $3tn all year and O/N RRP balances near $400bn in coming
weeks, which should help keep financing rates stable. Thus, swap spread wideners are
attractive across the board but especially at the front end where they are cheapest to fair
value
• Short Duration: SOFR took longer to settle back towards more normal levels post
month-end as Treasury coupon auction supply was more challenging for markets to
digest, especially given elevated dealer balance sheets. We expect SOFR to trend higher
around June-end and see ON RRP balances moving up on the spot date
• Securitized Products: Mortgages are on the tighter end of the range, and will likely
remain directional with rates. We like BBB subprime auto ABS and prefer high quality
sponsors in the BB space. The CREFC New York conference indicated investor confi-
dence has improved, but issues around modifications, supply, and valuations remain
• Corporates: HG spreads have widened off the YTD tights on elevated macro risks from
European elections. Positive factors include strong equity markets, light supply and still
strong demand. However, tight valuations and declining yields leave limited room for
tightening. High yield issuer fundamentals continue to deteriorate in 1Q24, but have still
to reach worrying levels
• Near-term catalysts: May retail sales (6/18), 1Q final real GDP (6/27), May personal
income (6/28), May JOLTS (7/2), June FOMC minutes (7/3), June employment (7/5)
Must Read This Week

BoJ set QT, but postponed a decision on In the aftermath of the European Parliament election, President Macron decided to dissolve
the details, Ayako Fujita, 6/14/2024
the lower house and called for a snap election in France, triggering a knee-jerk reaction in
FOMC guesses at fewer cuts in ‘24,
Michael Feroli, 6/12/24
the Euro government bond market. Short-term uncertainty in the French political landscape
May CPI to put a spring in Powell’s step, and medium-term concerns around the new EU Commission drove a flight-to-quality move,
Michael Feroli, 6/12/24 which began to spillover to US fixed income markets late in the week. On the domestic front,
French election: thoughts on outcome May CPI came in softer than expected, with the headline index flat over the month while
and market reaction, Aditya Chordia and the core index rose 0.16%, the softest reading since August 2021 and leaving the oya rate
Raphael Brun-Aguerre, 6/11/24 to step down to 3.4%. Within the details, core goods prices were roughly flat on the month
while shelter stepped up marginally. Furthermore, it is notable that core serves ex-housing
And Now Hear This…
At Any Rate: Unpacking a big week for
was roughly flat last month and this was driven in part by a drop in airfares and motor vehicle
4
JPMORGAN
Liam L Wash (1-212) 834-5230 14 June 2024
US rates, Jay Barry and Phoebe White, insurance components (see see May CPI put a spring in Powell’s step, Michael Feroli,
6/14/24 6/12/24). Once accounting for a soft PPI print and declining import prices, we believe core
REPLAY | US Policy Issues: Call Series
PCE rose 0.14% in May, which would bring the oya rate to 2.6% (see US: May import prices
with Brookings - Post-FOMC
Conversation with Donald Kohn, Michael
surprised lower, Michael Hanson, 6/14/24).
Feroli, 6/13/24
At Any Rate - Global FX, Rates & These events dictated the direction of travel for Treasury yields this week, with markets
Economics: French election: Thoughts on exhibiting little reaction to the FOMC meeting on Wednesday. The signal from the median
outcome and implication on rates/FX dot for this year was a little more hawkish than expected, showing only one cut in ’24, down
markets, Raphael Brun-Aguerre, Aditya from the three signaled in March. The median dot did not surprise hawkishly for the out
Chordia, Meera Chandan, 6/12/24
years, projecting another four cuts next year (up from three in March) and four in ’26 (also
up from three in March). So the total number of cuts over the next two and a half years is
still nine, as was the case in March, only with a later start and faster catch up after year
end.Powell’s answer as to whether Wednesday’s CPI was fully factored into the dots was
a little ambiguous, so there’s an argument that they aren’t entirely marked to the data. Over-
all, we continue to look for a first ease in November, and after this week’s inflation news
perhaps see risks tilted a little more toward September than December (see FOMC guesses
at fewer cuts in ‘24, Michael Feroli, 6/12/24).
Meanwhile, this week’s decline in yields looks somewhat overdone, with OIS forwards now
pricing in 50bp of cuts this year and 10-year yields at their lowest levels since early April
(Figure 1 & Figure 2). In the near term, with French elections about two weeks away, politi-
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cal developments could continue to haunt fixed income markets. But even in Europe, risk
premia appear overpriced. Our colleagues in European rates strategy think the the French
story is more idiosyncratic than systemic in nature for the time being, with limited region-
wide macro implications. They think the sharp widening in OAT/bund spreads is only justi-
fied if RN wins and takes a confrontational fiscal approach: this is less plausible in their
minds and they believe this week’s widening was excessive (see Euro Cash, Global Fixed
Income Markets Weekly, 6/14/24). Returning close to home, we forecast retail sales rose
0.4% in May (consensus: 0.3%) with the important control series rising 0.5% over the month
(consensus: 0.3%, see Economics). Combined, with yields sitting at the lowest levels in
nearly 3 months, the data developments looking more positive next week, and the
French political uncertainty unlikely to have broader macro implications, we recom-
mend turning tactically bearish on Treasuries. Along the curve, the 5-year sector is trad-
ing near the richest levels on the fly YTD. Accordingly, we recommend tactical shorts in
5-year Treasuries, and will keep a close eye on developments in Europe (see Treasuries).
Figure 1: Money markets are pricing in 50bp of easing over 2H24 Figure 2: More benign inflation data and rising political uncertainty helped
Cumulative easing priced by FOMC meeting as priced by OIS forward rates; bp Treasury yields fall to their lowest levels since early April
10-year Treasury yields; %
0 5.0
-1 -2
-25 -13
-19 -20
-29
-50 -35 4.5
-50 -46
-75 -59
-65 -70
-81 -82
-100 -93 4.0
07 Jun -96
-102
-125 -109
14 Jun -122
-150 -132 3.5
Jul-24 Sep-24Nov-24Dec-24 Jan-25 Mar-25 Apr-25 Jun-25 Jul-25 Sep-25 Jun 23 Sep 23 Dec 23 Mar 24 Jun 24
Source: J.P. Morgan Source: J.P. Morgan
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JPMORGAN
Liam L Wash (1-212) 834-5230 14 June 2024
Turning to derivatives markets, swap spreads were most impacted by European develop-
ments this week, narrowing 2-3bp across much of the curve and by as much as 5bp in the
20-year sector. For US market participants, there are a few broad questions to answer. First,
should we see this week's European developments as a deleveraging event (which could
impact global assets in broadly similar fashion) or a re-pricing of European political and
fiscal policy risk (in which case US Treasuries could benefit from a substitution effect, on
the margin)? We believe it is the latter, and therefore see any sustained narrowing of swap
spreads as an unlikely prospect. Second, are there other reasons to expect a rise in financing
costs? Here again, we think the answer is no. Thanks in part to a tapered pace of QT begin-
ning this month as well as stickier BTFP program balances, we project that Reserves will
remain comfortably above $3tn for the rest of the year, while O/N RRP balances will remain
near $400bn for at least a few months and over $300bn for the remainder of the year (Figure
3). Thus, repo financing costs are likely to remain quite stable in the US markets. As a result,
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we think the cheapening in US Treasuries (versus swaps) observed late in the week is
unlikely to be sustained, and therefore see recent moves as an an opportunity to initiate
swap spread wideners (see Interest rate derivatives).
SOFR has settled back to 5.31% as of 6/12, following several days of the benchmark remain-
ing slightly higher post month-end as it seems Treasury coupon supply was more challeng-
ing for markets to digest. We note that primary dealer inventories of Treasuries have grown
meaningfully over the past couple years, and recently surpassed their highest levels in terms
of total positions. Looking ahead, SOFR should trend higher as we approach June-end,
on average rising 2-3bp leading into month/quarter-end. It is likely ON RRP usage also
moves higher as well, particularly given negative T-bill supply combined with dealer bal-
ance sheet constraints into the quarter-end and as GSE cash enters the front end next week.
This could be partly offset by the mid-June corporate tax date, which typically is associated
with a $45bn decline in MMF AUMs around that time (see Short Term Fixed Income).
In inflation markets, breakevens have narrowed sharply over the last two weeks, with 5-year
breakevens narrowing 20bp on a carry-adjusted basis, and we recommend adding bullish
expressions at the front-end of the curve in a carry-efficient form. We are concerned that
markets are taking too much signal from the -0.04% sequential decline in core services ex-
housing CPI in May, and still believe that the disinflationary process over the balance of the
year is likely to remain bumpy. Similarly, after appearing in line with fair value estimates
last week, 5-year breakevens once again appear dislocated from our framework, with the
residual opening up to -14bp. Furthermore, throughout the summer, we expect election risks
will return to the forefront, with tariff and trade policy uncertainty remaining front and cen-
ter for markets. Thus, we think the front end of the inflation curve should embed some
positive premium, in order to reflect these risks. Against this backdrop, we add longs
in 1Yx1Y inflation swaps (see TIPS).
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JPMORGAN
Liam L Wash (1-212) 834-5230 14 June 2024
Figure 3: We project that Reserves will remain comfortably above $3tn for the rest of the year, while O/N
RRP balances will remain near $400bn for at least a few months and over $300bn for the remainder of
the year
Current* and projected total Fed balance sheet assets, RRP, TGA, Reserves, and Commercial bank deposits** through 2024;
$bn
RRP
Commercial Bank
End-of-the-month Fed Assets TGA Reserves
O/N RRP Foreign RRP Total RRP Deposits
Current 7310 448 385 833 650 3434 16271

Jun-24 7274 419 340 759 750 3372 16271
Jul-24 7229 392 340 732 775 3330 16287
Aug-24 7184 320 340 660 850 3281 16298
Sep-24 7138 346 340 686 775 3284 16351
Oct-24 7095 325 340 665 775 3263 16384
Nov-24 7052 303 340 643 775 3241 16416
Dec-24 6935 282 340 622 775 3145 16389
Source: J.P. Morgan., FRED, Federal Reserve H.4.1, Federal Reserve H.8
* Current as of 6/13/2024 Fed H.4. release
** Deposits as of 6/14/2024 Fed H.8. release
Mortgage spreads followed rates lower on the week in the wake of the soft CPI print, revers-
ing their sharp selloff following last week’s payroll print and sitting near the tighter end of
their year-to-date range. Mortgages continue to follow Fed policy expectations, but the
question remains if that directionality should persist if spreads push tighter. Even if rates
move lower, we do not think the market should be satisfied with ever tighter spreads given
the importance of money manager demand and as portfolio layer hedging has allowed banks
to become more spread sensitive. That said, much of the of the focus on high coupons center
on nominal or ZV spreads, and with the commonly held view that a Fed cutting cycle will
start a bullish resteepening of the curve, we can see demand for higher coupons persisting
even with tight OASs. That’s particularly true with IG spreads remaining at exceptionally
tight historical levels. As a result, it’s hard to recommend a strong short, but the intrin-
sic spread (beyond the option cost) that you’re getting paid to hold mortgages is look-
ing a bit snug. Separately on prepayments, we saw the VA refi index touch the highest levels
since March 2022 for the week of 6/3-7, driven largely by monthly seasonals, timing before
payrolls, and a cluster of high WAC borrowers (Figure 4, see Agency MBS). 0
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Meanwhile, mortgage credit spreads were well bid, with the soft CPI driving further risk-on
sentiment. That said, there remains significant difference in pricing spreads across pro-
grams in the new issue depending on delinquencies of vintage and liquidity (see RMBS).
Most ABS spreads held firm this week, though the auto sector saw a touch of softness on
supply pressure with AAA auto loan ABS spreads wider by 3-5bp and both BBB and BB
wider by 10bp. Indeed, while the primary market maintains a brisk pace, secondary saw
dealers pick up some inventory. Overall, relative value remains unchanged as the credit
curve continues to be flat-ish along with notable sponsor tiering. We still like BBB subprime
auto, currently at Treasury +150bp versus this year’s range of 140 to 225bp. BB offers addi-
tional pickup with indicative spreads at +345bp, but we prefer high quality sponsors (sellers/
servicers) when going down the capital structure (see ABS).
At the annual CREFC New York conference, market sentiment has improved since last
year’s regional bank stress. While investors are still concerned over fundamental issues in
the office sector, they recognize the current strategy of can kicking is preferable over dis-
tressed sales. Outside office, core property types like retail and lodging are performing well,
and the Fed funds rate peak suggests cap rate re-pricing may be nearing its end. Still there
were a number of concerns. Many investors believe modifications terms are too favorable
for borrowers while questions remain on whether post-mod re-defaults will receive more
7
JPMORGAN
Liam L Wash (1-212) 834-5230 14 June 2024
modifications or be flushed. Increased supply has been well received by investors with cash
to put to work, but there are concerns that fundamentals are strained. Finally, some investors
demand more fixed-rate product as the Fed prepares to cuts with interest in 5yr conduit
deals. With investors agreeing valuations appear fair, seasoned deals offer the most
attractive opportunities for savvy investors (see CMBS).
Figure 4: The VA index hit the highest level since March 2022 Figure 5: The average HG new issue deal size of $922mn MTD is the lowest
MBA VA refi index (daycount adjusted); unitless since Nov 2013, excluding Decembers
Average HG new issue deal size vs. June MTD; $mn
2500 Average Deal Size ($mn)
95 June MTD
85 2000
75
65 1500
55
45 1000
35
25 500
15 Jan-13 Jul-14 Jan-16 Jul-17 Jan-19 Jul-20 Jan-22 Jul-23
Mar 22 Sep 22 Mar 23 Sep 23 Mar 24
Source: J.P. Morgan, MBA Source: J.P. Morgan, Dealogic
High grade credit spreads broke out of their tight range over the last week, with spreads on
our JULI rising to 106 on Friday. Looking forward, there are several positive factors which
could potentially push spreads lower. First, a positive economic backdrop which supports
possible Fed easing has propelled equity markets while credit has lagged, with HG spreads
appearing 2bp too wide relative to the S&P 500. Second, supply has remained light this
week and deal sizes have shrunk (Figure 5). Dealer positions remain reasonable and are
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more heavily positioned in the short end of the yield curve. Third, pension fund demand for
fixed income should remain strong with funding ratios reaching 103.4% in May, the highest
level since November 2022, while positive returns portend increased fund inflows (Figure
6). That being said, valuations remain stretched. Spreads have only been tighter than current
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levels 4% of the time since 2000 while they represent 16.3% of yields, a lower share than
is typical when yields are above 5%. Moreover, declining yields may cause some investors
to step away but we caveat that further softening data could lead investors to think the trend
lower in yields is more persistent, and worth buying into. Overall we think supply/demand
imbalances are likely to push HG credit spreads modestly tighter, but given current
tight levels, there is limited room for significant further tightening (see Corporates).
The impact on US credit markets from recent European political developments is likely to
be minimal, with French-based companies comprising just 1.67% of our JULI index (and
0.27% of the Bloomberg index). That said, French bank bonds are an off-index position for
many investors with European banks (ex UK) providing strong returns this year vs. the
JULI. We remain overweigh the sector and view recent spread widening as a buying oppor-
tunity, especially as many investors view any sectors or credits which have lagged as offer-
ing value in a tight spread market. We expect this strong market technical to continue absent
ongoing negative news (see JPM Daily Credit Strategy & CDS/CDX am update, Eric Bein-
stein, 6/12/24).
Down the credit spectrum, our analysts note that US HY issuer balance sheets remain strong
heading into what could be a more challenging 2H24, with modest erosion across most cred-
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JPMORGAN
Liam L Wash (1-212) 834-5230 14 June 2024
it metrics still yet to reach worrying levels. Indeed EBITDA declined on a y/y basis for the
second time since 2020 and leverage increased to 4x, but is still below long-term averages
(Figure 7). Meanwhile, stickier inflation on the cost than revenue side is leading to flagging
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profit margins, leading increasing interest expense to weakened coverage ratios to below 5x
for the first time since 4Q21 but are still above long-run averages. Adding private companies
to the sample of public companies, our colleagues find this weakens overall coverage and
leverage ratios, but even this expanded base displays a stronger financial backdrop relative
to the loan market (see 1Q24 High Yield Credit Fundamentals, Nelson Jantzen, 6/12/24).
Figure 6: High pension funding status has contributed to a flat HG 10s30s Figure 7: Leverage ratios increased in 1Q24 but remain below long-term
curve over the past two years averages
US private DB Pension Funded ratio (lhs; %) vs. HG 10s30s spread (rhs; bp) LTM Debt/EBITDA; %
110% US Pension Funded Ratio, lhs 10s30s spread, rhs 60
5.0
105% 50
100%
40 4.5
95%
30
90% 4.0
20
85%
10 3.5
80%
75% 0
3.0
70% -10 1Q10 1Q12 1Q14 1Q16 1Q18 1Q20 1Q22 1Q24
Jan-12 Jul-13 Jan-15 Jul-16 Jan-18 Jul-19 Jan-21 Jul-22 Jan-24
Source: Milliman, J.P. Morgan Source: J.P. Morgan, S&P Capital IQ
9
JPMORGAN
Liam L Wash (1-212) 834-5230 14 June 2024
Figure 8: Cross sector monitor

Current levels, change since 6/7/24, 1-year average, minimum, maximum, and current z-score for various market variables; units as indicated
1-year range
Current Chg from 6/7 1Y avg 1Y min 6/14/24 6/7/24 1M range 1Y max Z-score
S&P 500 5432 1.6% 4747 4117 5434 1.9
Global equities E-STOXX 4839 -4.2% 4557 4014 5101 0.9
(level) FTSE 100 8147 -1.2% 7689 7257 8446 1.6
Nikkei 225 38815 0.3% 35064 30527 40888 1.2
2Y US Treasury 4.66 -19.3 4.77 4.12 5.22 -0.4
2Y Germany 2.73 -30.8 2.90 2.31 3.25 -0.8
Sovereign par 2Y JGB 0.27 -4.5 0.09 -0.10 0.37 1.6
rates (%) 10Y US Treasury 4.14 -23.3 4.23 3.64 4.99 -0.3
10Y Germany 2.36 -27.3 2.49 1.91 2.97 -0.6
10Y JGB 0.96 -3.6 0.75 0.39 1.10 1.4
2Y EUR par swap/gov't spd 180 8.2 176 143 201 0.4
2Y USD par swap/gov't spd -14 -3.3 -11 -19 -6 -0.8
Funding spreads EUR SOFR-OIS spd 183 8.0 157 124 183 1.7
(bp) USD SOFR-OIS spd 1 1.5 0 -2 5 0.4
1Y EUR-USD xccy basis 5 -5.8 3 -16 12 0.4
1Y USD-JPY xccy basis -12 -2.7 -19 -33 -9 1.1
30Y FNCL 4.5% Front Tsy OAS 31 -5.0 35 24 56 -0.7
10Y AAA new issue CMBS spd to swaps 111 3.0 129 96 165 -0.8
3Y AAA card ABS spd to SOFR 53 0 62 53 76 -1.1
JULI portfolio spd to Tsy 107 4.3 121 99 152 -0.9
JPM US HY index spd to worst 351 18.2 390 317 473 -0.9
Credit spreads EMBIG Div spd to worst 394 8.7 399 322 459 -0.1
(bp) CEMBI Broad spd to worst 229 8.4 282 220 336 -1.5
iBoxx Euro HG spd to govies* 77 8.5 83 68 97 -0.7
US Financials spd to Tsy 97 4.7 121 88 156 -1.2
Euro Financials spd to govies 121 18.1 134 101 162 -0.7
10Y AAA muni spd to Tsy -142 8.4 -152 -193 -112 0.4
10Y AA taxable muni spd to Tsy* 62 2 86 60 105 -1.7
EUR/USD 1.069 -1.2% 1.082 1.048 1.124 -0.9
USD/CHF 0.891 -0.7% 0.888 0.836 0.921 0.2
USD/JPY 157.38 0.3% 148.50 138.19 157.67 1.9
Currencies
JPM Trade-weighted USD index 134.30 0.4% 130.86 126.80 134.30 2.1
GBI-EM Global FX index 78.83 -0.5% 80.08 78.77 81.77 -1.8
Bitcoin spot 65735 -5.1% 44423 24929 73157 1.3
Gold futures ($/t oz) 2300 -0.2% 2065 1817 2439 1.4
Commod-ities Brent oil futures ($/bbl) 82.62 3.8% 83.39 72.26 96.55 -0.2
LME Copper 3M rolling forward ($/tonne) 9742 -0.2% 8721 7899 10889 1.5
Source: J.P. Morgan, Bloomberg Finance L.P., ICE, IHS Markit

* 6/13/24 levels for iBoxx Euro HG and AA taxable munis; 6/14/24 levels for all others
10
JPMORGAN
Liam L Wash (1-212) 834-5230 14 June 2024
Figure 9: YTD returns on various fixed income indices; %

Index Since last publication (6/7/2024) Year-to-Date (as of 6/14/2024)
USD Cash 0.11% 2.6%
Aggregate GABI 0.92% 2.1%
UST Agg 1.30% 0.0%
UST 1-5y 0.58% 0.9%
UST 5-10y 1.52% -0.2%
UST 10y+ 3.00% -1.9%
UK 1.03% -3.1%
Germany 0.73% -4.1%
Italy -0.70% -2.7%
Japan -0.08% -12.9%
EM Sovereign 0.96% 2.2%
Agencies 0.70% 1.2%
FN 3.0% 1.73% -0.8%
FN 2.5% 1.81% -1.0%
FN 2.0% 1.94% -1.4%
ABS Fixed 0.38% 2.9%
HG Bonds 1.20% 0.6%
AAA 1.52% -1.2%
AA 1.25% -0.3%
A 1.23% 0.4%
BBB 1.16% 1.0%
Fin 0.92% 1.6%
Non-Fin 1.33% 0.1%
HY Bonds 0.26% 3.0%
BB 0.32% 2.3%
B 0.31% 3.6%
CCC 0.18% 4.7%
EM Corporate 0.61% 3.7%
CLOIE 0.12% 4.2%
JUSTINE 0.73% 0.9%
Source: J.P. Morgan
11
Michael Feroli (1-212) 834-5523 North America Fixed Income
michael.e.feroli@jpmorgan.com Strategy
JPMORGAN
JPMorgan Chase Bank NA U.S. Fixed Income Markets Weekly
Michael S Hanson (1-212) 622-8603 14 June 2024
michael.s.hanson@jpmchase.com
JPMorgan Chase Bank NA
Economics
• Core CPI rose only 0.16% in May, the softest monthly gain since August 2021
• Initial jobless claims climbed to 242,000, the highest level since last summer
• The FOMC dialed back expectations for rate cuts this year but left easing in place
for ’25 and ’26
• Next week’s May retail sales report expected to bounce back after April stumble
There were two major developments this week: the May CPI report and the FOMC meeting.
Of the two, the larger surprise came in the inflation news. The headline CPI index was flat,
a tenth below expectations, and the year-ago increase ticked down to 3.3%. The bigger—or
perhaps smaller—news was in the core (ex-food and energy) category, which increased just
0.2%, also a tenth below expectations. But to two decimal places the 0.16% increase was
the softest since August 2021, taking the year-ago pace down two-tenths to 3.4%.
In keeping with the mood music, the May PPI also came in well below expectations. The
headline PPI declined 0.2% and the core (ex-food, energy, and trade services) was flat, the
softest reading since April 2020. Import prices were also weak in May, declining 0.4%. The
information in the CPI, PPI, and import prices implies, by our estimation, a 0.14% increase
in the May core PCE index, which would leave prices in this inflation gauge favored by the
Fed up 2.6% over a year ago, down from 2.8% in April.
There was a lot of news on inflation this week but little news on economic activity. The most
notable development was the 13,000 increase in the weekly jobless claims figures to a 10-
month high of 242,000. This should be met with neither alarm nor complacency. Claims
moved even higher last summer, though much of that was apparently fraudulent filings.
Moreover, seasonal adjustment of weekly data around holidays can be noisy. However,
claims tend to be the canary in the coal mine when the labor market turns, so this data point
will bear extra scrutiny in coming weeks.
The FOMC meeting concluded on Wednesday, following the CPI report. The FOMC left
the funds rate unchanged at 5.25-5.5%, as expected, for the seventh consecutive meeting.
The 2024 year-end forecast “dot” of the median participant now looks for only one rate cut
this year, down from three at the last forecast round in March. To be sure, in March much
of the Committee was looking for two or three cuts, whereas this week most were expecting
one or two, so the change in expectations wasn’t dramatic. We continue to see a first ease
in November, but if the inflation news this week is repeated or the labor market shows unex-
pected weakness, it’s conceivable they could ease by the September meeting.
Inflation takes a turn for the better

In the CPI report, energy prices declined 2.0%, which was a little more than we expected.
Gasoline prices were down 3.6%, but there were also modest declines in household energy
prices. Food prices increased a modest 0.1% last month, and the year-ago increase in food
prices moderated to 2.1%.
Within the core, the flat reading in core goods prices and the 0.4% rise in both rental mea-
sures were little changed from recent months. The really notable development was a flat
(-0.04%) supercore measure—core services ex-rent—last month, the softest reading since
September 2021 (Figure 1).
12
JPMORGAN
Figure 1: Core services CPI ex. tenants' rent and OER

%m/m, sa
1.5
1.0
0.5
0.0
-0.5
11 13 15 17 19 21 23 25
Source: BLS, Haver Analytics, J.P. Morgan
Within supercore the most consequential development was a 0.1% decline in vehicle insur-
ance last month (Figure 2). In the year through April, vehicle insurance accounted for about
half of the 4.7% year-ago increase in the supercore index, so if this is the start of a new trend,
it would be a meaningful development for both core and supercore CPI. Our insurance
industry analysts had indicated that vehicle insurance price increases would moderate later
this year, but that development may have arrived a little ahead of schedule.
Figure 2: CPI for motor vehicle insurance

%m/m, sa
4
3
2
1
0
-1
-2
-3
10 12 14 16 18 20 22 24
Source: BLS, J.P. Morgan
Elsewhere in the report used vehicle prices were up 0.6%, only partly reversing the prior
month’s decline. Meanwhile, new vehicle prices were down 0.5% for a fifth consecutive
monthly decline. Apparel prices dipped 0.3% after jumping notably in April. Among super-
core categories, the volatile airfare index fell 3.6% last month. Tuitions firmed a little to
0.4%, and medical service prices increased a trend-like 0.3%.
Meanwhile, the headline PPI declined by 0.2% in May, easing the year-ago rate to 2.2%. The
ex-food and energy measure also surprised lower, unchanged on the month. Even with these
light readings, the details related to the PCE price measure for health care were actually a
bit on the firm side. May import prices also came in light: the headline fell 0.4% and the
ex-petroleum index slipped 0.3%. Prices of imported consumer goods slipped 0.2%, a third
consecutive monthly decline, and are now flat on a year-ago basis.
13
JPMORGAN
Keep an eye on claims

The recent increase in jobless claims to 242,000 brings with it all the usual caveats about
weekly economic data: noisy, subject to seasonal adjustment issues, etc. However, the read-
ing is now up 34,000 from its recent local low in mid April, so upcoming reports should be
watched carefully to see if the numbers climb back down (Figure 3). In addition, the number
of continuing claims jumped 30,000 last month and is now just below the recent local high
from January.
Figure 3: Jobless claims

Thousands, sa Continuing Millions, sa
claims
280 1.85
Initial
260 claims 1.80
1.75
240
1.70
220
1.65
200 1.60
180 1.55
Jan 1, 23 Apr 11, 23 Jul 20, 23 Oct 28, 23 Feb 5, 24 May 15, 24
Source: Department of Labor, J.P. Morgan
Fed scales back ‘24 rate cut expectations

Since the decision to leave rates unchanged was almost universally expected, the news from
the FOMC this week was in the interest rate forecast “dots.” The signal from the median dot
for this year was a little more hawkish than expected, showing only one cut in ’24, down
from the three signaled in March. The median dot did not surprise hawkishly for the out
years, projecting another four cuts next year (up from three in March) and four in ’26 (also
up from three in March). So the total number of cuts over the next two and a half years is
still nine, only with a later start and faster catch-up (Table 1).
In this year’s dots, four participants saw no change. Among the rest, 7 favored one cut while
eight favored two. Besides Bowman and Waller, we suspect the rest of the Board was in the
latter camp. For ’25 and ’26, the 4.1% and 3.1% median dots were both close to their respec-
tive means and modes. The ’26 median was unrevised from March, even though the longer
run median moved up from 2.56% to 2.75%. Nine participants now have a longer run dot
at 3.0% or higher.
Table 1: FOMC federal funds rate forecasts (median values eoy)

Meeting date 2024 2025 2026 Longer run
Sep '23 5.1 3.9 2.9 2.5
Dec '23 4.6 3.6 2.9 2.5
Mar '24 4.6 3.9 3.1 2.6
Jun '24 5.1 4.1 3.1 2.8
Source: Federal Reserve Board, J.P. Morgan
Powell’s answer to the question about whether the May CPI was fully factored into the dots
was a little ambiguous, so there’s an argument that they aren’t entirely marked to the data.
14
JPMORGAN
It’s possible Powell was in the two-cut plurality of dots for this year, though it’s hard to say
for sure given that there are many participants, some new, who haven’t commented on policy
recently. Less hard to say is that unlike in recent press conferences, Powell was not especial-
ly dovish. It’s not that he was hawkish, more that his tone seemed aligned with the SEP and
other Committee communication products. There was only one substantive change to the
post-meeting statement: whereas the May statement referred to “a lack of progress” toward
two percent inflation in recent months, the June statement describes “modest progress.”
In describing the dot plot, Powell said it was hard to distinguish between scenarios that
would lead to one or two cuts, making it a close call for those 15 participants. He described
the May CPI report as “progress” toward “building confidence” but still cautioned that it
was one report. He also mentioned that participants were made aware that they could change
their dots after the data, but that “most people don’t.” He continued to say there were two
conditions that would prompt rate cuts: more confidence in inflation coming down, or unex-
pected weakness in the labor market. Unlike in May, he didn’t get into what the latter might
mean.
Goods sector data to firm in May

Next week’s retail sales and industrial production reports are both expected to rebound from
weaker April readings. Our Chase card data point to strong spending across several retail
categories last month; we anticipate a 0.4% gain in the headline and 0.6% in the ex-autos
and gasoline measure. Meanwhile, we look for a good-sized rebound in auto production to
help lift manufacturing output 0.5% in May. If realized, these above-consensus reports
could counter some of the more downbeat assessments about the economic outlook that
have begun to seep into market discussions.
Excerpted from, United States Data Watch , Michael Feroli, June 14, 2024
15
Jay Barry AC (1-212) 834-4951 Afonso Borges (1-212) 834-4349 North America Fixed Income
john.f.barry@jpmorgan.com afonso.borges@jpmorgan.com Strategy
JPMORGAN
Phoebe White (1-212) 834-3092 Liam L Wash (1-212) 834-5230 14 June 2024
phoebe.a.white@jpmorgan.com liam.wash@jpmchase.com
J.P. Morgan Securities LLC J.P. Morgan Securities LLC
Treasuries
Whiplash
• Treasury yields retraced to their lowest levels since March, supported by benign infla-
tion data, renewed political risk in Europe, and a dovish BoJ
• We think Treasury yields are likely to remain rangebound through the summer. On one
hand, this week’s data should allay fears that inflation is reaccelerating, and leaves the
door firmly open to lower rates later this year. However, the Fed is in no rush to ease,
and if the first cut is indeed months away, it will be challenging for yields to decline
further over the near term
• Though the environment supports carry trading, risk adjusted-carry is pretty low and the
5-year sector is trading near the richest levels on the fly YTD: take profits on 3s/5s/7s
belly-richening butterflies
• With yields at multi-month lows, OAT/bund spreads priced for a more negative out-
come, and next week’s retail sales likely to show a healthy bounce, we turn tactically
bearish in the 5-year sector
• Add 100:98 weighted 4.75% Feb 37s / 4.5% Aug 39s steepeners for relative value
• We expand our analysis of CFTC data and consider the evolution of open interest con-
centration as a metric for measuring crowding in futures positions...
• ...We find the top 4 investors share of FV and UXY contracts offers a meaningful and
consistent near term contrarian signal, where yields usually rise following periods of
larger-than-usual concentration
Market views
Treasury yields plunged 17-24bp over the last week, more than reversing last week’s move,
supported by a round of benign May inflation data, a splash of risk aversion, and dovish
developments from the BoJ. The big shock came from CPI, as the core index rose 0.16%
in May (consensus: 0.3%), the softest reading since August 2021, taking the oya series down
from 3.6% to 3.4%. Within the details, the supercore series was flat on the month, driven
by weakness in auto insurance and airfares (see May CPI to put a spring in Powell’s step,
Michael Feroli, 6/12/24). Alongside the benign PPI reading and declining ex-fuel import
prices in May, and we think core PCE rose 0.14% in May, the weakest monthly reading since
October 2023, taking the series to 2.6% oya (see US: May import prices surprised lower,
6/14/24). Meanwhile, initial claims surprised to the upside, rising 13k to 242k for the week
ending June 8 (consensus: 225k), the highest level since August 2023, but our economists
caution this could reflect residual noise following the Memorial Day holiday (see US: Job-
less claims jump 13,000 post Memorial Day, Murat Tasci, 6/13/24).
Internationally, political uncertainty was on the rise in Europe after Le Pen’s National Rally
(RN) scored strong results in the European parliamentary elections and President Macron
called a lower house election for later this month. This decision was a surprise and OAT/
bund spreads moved to their widest levels since 2017 following the results, as investors
de-risked over concerns on what a move to the right could mean for the fiscal picture in
France. Meanwhile, the BoJ surprised to the dovish side: it announced a policy of reducing
its balance sheet, but postponed the decision on the details of the QT process until the July
meeting. We now see rising risks for the BoJ to delay rate hikes until September unless
additional weakness of the yen puts more pressure on the BoJ (see BoJ set QT, but postponed
a decision on the details, Ayako Fujita, 6/14/24). Against this backdrop, this week’s Trea-
16
JPMORGAN
sury auctions were met with a strong reception: the longer duration auctions both stopped
rich relative to pre-auction levels, with strong increases in end-user demand as well (Figure
10). Given these developments, intermediate Treasury yields have now declined to their
.
m
y
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v
tcp
ra
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lowest levels since the beginning of April (Figure 11). c-A

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Figure 10: This week’s long-duration auctions stopped rich relative to pre- Figure 11: ...and alongside benign inflation data, helped Treasury yields
auction levels, supported by strong end-user demand... fall to their lowest levels since early-April
Statistics for this week’s Treasury auctions; units as indicated 10-year Treasury yields; %
3s 10s 30s
5.0
Jun 1.2 -1.8 -1.4
Auction tail (bp) May 0.0 1.1 -0.6
Prev 3M avg 0.3 1.7 -0.6 4.5
Jun 80.0 88.4 86.3
End-user (%) May 85.1 84.3 84.6
Prev 3M avg 83.8 81.1 84.5 4.0
Jun 2.43 2.67 2.49
Bid-to-cover May 2.63 2.49 2.41
3.5
Prev 3M avg 2.58 2.45 2.42
Jun 23 Sep 23 Dec 23 Mar 24 Jun 24
As we look ahead, we think Treasury yields are likely to remain rangebound through the
summer. On one hand, this week’s data should allay fears that inflation is reaccelerating, and
leaves the door firmly open to lower rates later this year. To the extent that yields tend to
decline and the curve tends to steepen, even in shallower easing cycles, this should support
room for bullish steepening in 2H24. However, the message from the FOMC indicated that
it’s in no rush to ease: the median 2024 dot showed one cut, from three in March, and 15 of
19 participants now see one or two cuts this year. This was partially offset by projections
for the out years, which project another four cuts in both 2025 and 2026, both up from three
in March (see FOMC guesses at fewer cuts in ‘24, Michael Feroli, 6/12/24). Furthermore,
Chair Powell’s Q&A was not nearly as dovish as we’ve seen in other recent press conferenc-
es, remarking a number of times he needs greater confidence before lowering rates. Thus,
if form holds, consistent with other more shallow easing cycles, we may not get satisfaction
from more structurally bullish trades until later this summer (see Treasuries, US Fixed
Income Markets Weekly, 6/7/24).
This should prevent yields from moving materially lower over the near term, especially as
OIS forwards are now pricing in 50bp of cuts this year (Figure 12). Moreover, longer out .
4
H
2
fv
b
0
5
icg
tsp
rk
a
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ey
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M
the curve, valuations no longer appear cheap: 10-year Treasuries appear fairly valued after
adjusting for market-based Fed policy, inflation, and growth expectations for the first time
in 3 months (Figure 13). Certainly, Treasuries can trade rich relative to their fundamental
3
m
th
o
v
fly
ip
resu
T
d
n
.a
drivers, though it’s notable that they have not traded rich on this basis since the regional
banking crisis last year. This should put a floor on yields at levels higher than we observed
late last year when the “immaculate disinflation” narrative drove markets to price upwards
of 150bp of easing over a 12 month period. This month’s inflation data are certainly a posi-
tive development, but as we noted earlier this week, airfares and motor vehicle insurance
alone accounted for more than half of the step down in supercore CPI between April and
May, and we would be careful to extrapolate too much of the weakness in the May print (see
US Treasury Market Daily, 6/12/14).
17
JPMORGAN
Figure 12: Money markets are pricing in 50bp of easing over 2H24... Figure 13: ..and Treasuries appear fairly valued for the first time in 3
Cumulative easing priced by FOMC meeting as priced by OIS forward rates; bp months
Residual of J.P. Morgan 10-year Treasury fair value model*; bp
0 75
-1 -2
-13 50
-19 -20
-29
-50 -35
-50 -46 25
-59
-65
-70 0
-81 -82
-100 -93
-96
07 Jun 14 Jun -109 -25
-122
-150 -50
Jul-24 Sep-24 Nov-24 Dec-24 Jan-25 Mar-25 Apr-25 Jun-25 Jul-25 Jun 19 Jun 20 Jun 21 Jun 22 Jun 23 Jun 24
Source: J.P. Morgan Source: J.P. Morgan, Federal Reserve, US Treasury

** Regression of 10-year Treasury yields on 5Yx5Y seasonally-adjusted TIPS breakevens (%), 3m3m
OIS rates (%), Fed policy guidance (months), J.P. Morgan US Forecast Revision Index (%), and SOMA
share of outstanding marketable US Treasury debt, excluding T-bills (%). Regression over the last
5-years. R-squared = 98.3%, SE = 17.1bp
Rangebound, lower volatility markets make the case for carry trading, but as we’ve high-
lighted recently, risk-adjusted carry has declined sharply in recent months, and means inves-
tors need confidence volatility has significant room to decline to support these trades. The
20-year sector is emblematic of this dynamic, as much of its outperformance through the
spring was supported by declining volatility (see Treasuries, US Fixed Income Markets
Weekly, 5/31/24). We also observe this dynamic in a range of butterflies. As a reminder,
3-months ago, we recommended 3s/5s/7s belly richening butterflies for carry, with a relative
value overlay (see Treasuries, US Fixed Income Markets Weekly, 3/15/24). These butterflies
have outperformed in recent months, and the 5-year sector is now trading near the richest
levels on the fly year-to-date, limiting the room for further belly outperformance (Figure
14). Against this backdrop, we recommend taking profits on 3s/5s/7s belly-richening
n
d
m
flh
u
b
y
eca
tv
,p
-risk
w
o
L
butterflies (see Trade recommendations).

Figure 14: Low-risk, positive carry butterflies have outperformed in recent months and are now closer
to fairly valued
50:50 weighted Treasury butterflies over the last 3 months, with statistics from 3-month regression on level and curve, and
3-month carry and roll;
Butterfly Level R^2 Beta to t5 Residual Z-score 3m C+R
2s/3s/5s -3.2 37.3% 0.04 -0.5 -0.6 -0.1
2s/3s/7s -2.2 53.8% 0.06 -0.2 -0.3 -1.4
2s/5s/10s -22.3 91.7% 0.14 -0.1 -0.1 4.1
2s/5s/30s -29.2 86.7% 0.21 0.3 0.2 2.9
2s/10s/30s -30.5 87.0% 0.12 0.7 0.7 7.5
3s/5s/10s -9.2 79.8% 0.07 0.3 0.5 0.9
3s/5s/7s -8.9 69.1% 0.05 0.7 1.4 2.0
3s/10s/30s -17.4 72.9% 0.05 0.8 1.1 4.4
3s/5s/30s -16.1 88.1% 0.14 0.6 0.8 -0.3
5s/7s/10s -1.2 20.6% 0.01 -0.9 -1.5 0.3
5s/10s/30s -7.5 32.0% 0.02 0.5 1.0 1.1
10s/20s/30s 18.5 14.0% -0.01 2.0 1.9 1.3
Source: J.P. Morgan
18
JPMORGAN
Over the near term, we think the risks to the Treasury market are actually skewed bearishly.
Internationally, our colleagues in European rates strategy think the the French story is more
idiosyncratic than systemic in nature for the time being, with limited region-wide macro
implications. They think the sharp widening in OAT/bund spreads is only justified if RN
wins and takes a confrontational fiscal approach: this is less plausible in their minds and they
believe this week’s widening was excessive (see Euro Cash, Global Fixed Income Markets
Weekly, 6/14/24). Returning close to home, we forecast retail sales rose 0.4% in May (con-
sensus: 0.3%) with the important control series rising 0.5% over the month (consensus:
0.3%, see Economics). This forecast appears to be supported by strength in our Chase con-
sumer card data, which point to a 0.7% rise in the control measure on the month (see Daily
consumer spending tracker, Dan Weitzenfeld, 6/12/24). Combined, with yields sitting at the
lowest levels in nearly 3 months, the data developments looking more positive next week,
and the French political uncertainty unlikely to have broader macro implications, we recom-
mend turning tactically bearish on Treasuries. Along the curve, the 5-year sector is trad-
ing near the richest levels on the fly YTD (Figure 5). Accordingly, we recommend tacti-
cal shorts in 5-year Treasuries, and will keep a close eye on developments in Europe
(see Trade recommendations).
Turning to relative value, we see opportunities in the 2036-38 sector, as these securities have
underperformed significantly relative to our par curve over the last 4 weeks. In particular,
we like to fade the cheapening in 4.75% Feb-37s (Figure 15). Separately, we note that 4.5%
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Aug-39s, the CTD into USM4, have outperformed recently, but this security will drop out
of the US deliverable basket next week, and likely has room to cheapen. Further, as Figure
16 shows, the Feb-37/ Aug-39 appear 6.9bp too flat relative to the shape of 10s/20s. Against
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this backdrop, we recommend 100:98 weighted 4.75% Feb 37s / 4.5% Aug 39s steepen-
ers (see Trade recommendations).
Figure 15: 4.75% Feb 37s have underperformed significantly in recent Figure 16: Feb-37s / Aug-39s appear too flat relative to the shape of the
weeks 10s/20s Treasury curve
1-year z-score of 4.75% Feb-37 yield error; Residual of 4.75% Feb 37s / 4.5% Aug 39s curve regressed on 10s/20s Treasury curve;
bp
4 3
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0 -2
-3
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-5
-6
-4 -7
Jun 23 Sep 23 Dec 23 Mar 24 Jun 24 Dec 23 Jan 24 Feb 24 Mar 24 Apr 24 May 24 Jun 24
R-squared: 34.9%; S.E. 1.8bp
Can open interest concentration in futures contracts indicate

crowded positioning?
The CFTC’s weekly Commitment of Traders release remains one of our preferred measures
of investor positioning, alongside our weekly Treasury Client Survey, as well as empirical
measures of positioning across actively-managed bond funds, macro hedge funds, and
CTAs (see Appendix). Historically, we have used the sum of speculative positioning across
the Treasury futures complex to discern shifts in speculative positioning in rates over time,
19
JPMORGAN
but this series has shown a net short for the better part of the last decade, and has only grown
over the last year even after the Fed has gone on hold, indicating this structural short. The
growth of levered shorts is largely equal to the opposite of the growth in net longs in futures
contracts from the asset manager community (Figure 17). ,
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This is well known by market participants, but work done by the TBAC earlier this year
showed the structural asset allocation preference of active fixed-income managers and asso-
ciated demand for Treasury futures likely richens valuations compared to underlying cash
Treasuries. The richness of futures creates a premium that can be captured in long Treasury
cash/futures basis trades, by hedge funds. Accordingly, we can conclude that much of the
buildup of speculative short positioning in Treasury futures in recent years can be more
attributed to basis positioning than duration positioning. Fortunately, CFTC also offers oth-
er data on the concentration of open interest, which we can use to divine the concentration
of positioning in Treasury futures at any given time, and give us potential insight into the
direction of travel in Treasury yields over multiweek horizons.
Figure 17: Speculative positioning in rates is structurally short and can be Figure 18: The 4 largest traders represent a disproportionately large share
attributed to basis trades, rather than duration positioning of UXY longs and WN shorts
Net longs across Treasury futures*; thousands of contracts Net open interest of top 4 and top 8 firms as a share of total net interest (%) and 1- year
z-scores, as of 6/4/2024;
10000 Longs Shorts
Contract Top 4 net Top 8 net Top 4 net Top 8 net
5000 TU 17% -1.8 24% -1.8 25% -1.7 36% -1.8
FV 20% -0.8 28% -0.8 21% -1.9 34% -0.8
0 TY 20% -0.8 27% -1.1 20% 0.8 28% -0.4
UXY 26% -1.8 37% -1.8 18% -1.8 27% -1.4
-5000 US 22% -0.3 37% 0.6 25% 1.7 35% 1.7

Leveraged Funds WN 21% 0.3 33% -0.4 32% -0.5 42% -0.7
Asset Managers
-10000
2014 2016 2018 2020 2022 2024
Source: CFTC Source: CFTC
*across TU, FV, TY, UXY, US, and WN
Hence, we expand our analysis of CFTC data and consider the evolution of open inter-
est concentration as a metric for measuring crowding in futures positions: Figure 18 e
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contracts, alongside their respective 1-year z-scores. It’s important to make a few observa-
tions as it relates to utilizing this data in order to predict near-term rates moves. First, as
discussed above, asset managers show a net long bias in futures over time and are more
likely to use futures to express duration views. The opposite is true for leveraged funds,
which are persistently net short futures, likely reflecting Treasury basis positions. Hence,
the concentration of net longs offers a more relevant contrarian trading signal than
that of net shorts. Relatedly, we note that the top 4 share of net longs has generally been
more volatile and less concentrated than that of net shorts (Figure 19). fu
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Second, intuitively, this concentration measure offers an asymmetric trading signal. Indeed,
net longs that are highly concentrated amongst just a few investors might suggest a higher
risk that a shift in those positions could support a near-term move to higher yields. On the
other hand, when concentration drops below historical averages, that’s consistent with more
breadth in positioning, that is less at risk of a near-term unwind. Accordingly, we focus on
large deviations to the upside on the share of net longs held by the largest traders.
Third, the four largest investors typically account for disproportionately larger shares of FV
and UXY contracts on the long side, and WN contracts on the short side. Currently, as Figure
20
JPMORGAN
9 also shows, the top 4 net long shares of UXY and WN open interest remain larger those
of other contracts, while the top 4 net longs share FV OI is more in line with other contracts.
More broadly, at this point, the concentration of net longs does not appear elevated in
any of the contracts in the Treasury futures complex, so therefore we wouldn’t expect
significant moves in yields over the near term based off concentrated futures position-
ing.
More broadly, we don’t see significant net short position concentration across futures
contracts, with the exception of the US contract, which suggests basis positioning may
be significantly larger than at any point over the last year. Further, while the US con-
tract shows greater concentration of OI relative to 1-year averages, it’s notable that
WN concentration remains significantly higher.
Figure 19: Over the last 5 years, we have tended to notice greater Figure 20: Large concentrations of FV longs usually precede moves to
concentration in shorts in futures contracts than longs higher yields...
Top 4 net long and short shares* of total open interest across all Treasury future contracts; Hit rate* (%; lhs) and average change in 5-year Treasury yields in the following 4- week
% period (bp; rhs) by top 4 net longs share of FV OI over the past 10 years
35% 64% 7
Top 4 longs share 4w chg 5y UST (bp; rhs)
62% Hit rate (%; lhs) 6
30% Top 4 shorts share
60%
5
58%
25%
4
56%
20% 54% 3
52% 2
15% All weeks 30% (29%) 32.5% (17%) 35% (9%) 37.5% (3%)
2014 2016 2018 2020 2022 2024 Top 4 net longs share > x (% weeks)
Source: CFTC * Source: CFTC, J.P. Morgan

Average across TU, FV, TY, UXY, US, and WN contracts in TY equivalents *Hit rate defined as % of instances when 5-year Treasury yields rose in the 4 weeks following a given
top 4 net longs share of FV OI
Interestingly, we find that when open interest on the long side is disproportionately concen-
trated amongst a small group of investors, this can offer a signal on the near-term direction
of yields. Starting with FVs, on average over the last decade, when the share of open inter-
est held by the 4 largest investors rises above 30% (29% of observations), 5-year Trea-
sury yields proceed to rise 4.9bp in the following 4-weeks (Figure 20). This result com- .
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pares with an average 2.2bp rise over rolling 4-week periods over the last decade. As the
figure also shows, these results are somewhat consistent, with hit rates between 56% and
63% depending on the concentration threshold, versus 53% for all observations over the last
decade. Interestingly, these results are even more robust over the last five years. During this
shorter period, the top 4 net longs share rose above 30% in only 15% of instances, with a
56% hit rate; more interestingly, in the 6% of instances when the top 4 share rose above
32.5%, 5-year interest rates always proceeded to move higher in the near term. Turning to
UXYs, we find similar results, with larger concentrations of open interest also preceding
upward moves in 10-year yields in the following 4 weeks (Figure 21). On average, 10-year I
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yields rose by 5.4bp in the 4-week period following a greater than 35% concentration
of open interest in the 4 largest investors (20% of all observations over the last decade),
with hit rates between 60% and 68% for the different thresholds presented. This result com-
pares with an average 2.5bp rise, and a 53% hit rate for all observations since the launch of
the contract in 2016. Further, we’d also note these results remain relevant if we instead focus
on the share of open interest held by the top 8 net longs.
21
JPMORGAN
Away from FVs and UXYs, we do not find consistent results across other Treasury futures
contracts: Figure 22 summarizes the hit rates, or percentages of instances when Treasury
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yields rose over subsequent 4-week periods, for each bucket of top 4 net longs share of open
interest. In particular, TY and both long-end contracts (US and WN) show counterintuitive
results, as hit rates drop for higher top 4 net long shares of OI. In the case of TYs, we think
this result is explained by a structurally lower concentration since the introduction of the
UXY contract in 2016, suggesting some larger end users have shifted their duration position
out the curve over the period. Turning to US and WN, the top 4 net long shares of OI in these
contracts are both less volatile and structurally lower over time, so we’re not surprised they
don’t offer a good near-term trading signals. Overall, we find meaningful and consistent
results for FVs and UXYs, but not in the other Treasury futures contracts. We think
investors should consider key concentration thresholds of the top 4 investors, such as
30% of open interest in the case of FV and 35% in the case of UXY as near term trading
signals for considering setting Treasury shorts.
Figure 21: …We find similar results for large concentrations of UXY OI Figure 22: The concentration of net longs does not provide a useful signal
Hit rate* (%; lhs) and average change in 10-year Treasury yields in the following 4- week in other contracts
period (bp; rhs) by top 4 net longs share of UXY OI since March 2016 Hit rates* for different Treasury contracts and top 4 net longs share of OI over the last
10-years; %
70% 12 Share > All 22.5% 25% 27.5% 30%
Chg 10y UST (rhs; bp)
Hit rate (%; lhs) 10 TU (% time) weeks (34%) (19%) (8%) (3%)
65%
8 Hit rate 61% 60% 66% 64% 53%
Share > All 30% 32.5% 35% 37.5%
60% 6
FV (% time) weeks (29%) (17%) (9%) (3%)
4
55% Hit rate 53% 57% 60% 56% 63%
2 Share > All 27.5% 30% 32.5% 35%
50% 0 TY (% time) weeks (26%) (17%) (12%) (6%)
All weeks 35% (20%) 37.5% (11%) 40% (8%) 42.5% (5%) Hit rate 50% 45% 43% 38% 33%
Top 4 net longs share > x (% weeks)
Share > All 35% 37.5% 40% 42.5%
UXY** (% time) weeks (20%) (11%) (8%) (5%)
Hit rate 53% 62% 60% 60% 68%
Share > All 20% 22.5% 25% 27.5%
US (% time) weeks (61%) (29%) (15%) (6%)
Hit rate 62% 45% 50% 46% 54%
Share > All 20% 21.5% 23% 24.5%
WN (% time) weeks (64%) (42%) (20%) (7%)
Hit rate 62% 45% 42% 39% 31%
Source: : CFTC, J.P. Morgan Source: CFTC, J.P. Morgan

*Hit rate defined as % of instances when 10-year Treasury yields rose in the 4 weeks following a given *Hit rates defined as % of instances when Treasury yields rose in the 4-weeks following a given top
top 4 net longs share of UXY 4 net longs share of OI (TU and 2-year Treasury yields, FV and 5-year Treasury yields, TY and 7-year
Treasury yields, UXY and 10-year Treasury yields, US and 20-year Treasury yields, WN and 30-year
Treasury yields) **since March 2016
22
JPMORGAN
Trade recommendations
• Initiate 5-year duration shorts
- Sell 100% risk, or $50mn notional of T 4.5% May-29s (yield: 4.227%; bpv: $446/
mn)
- Yield is 4.227%. One-month weighted carry is 2.1bp and roll is 0bp
• Initiate 100:98 weighted 4.75% Feb 37s / 4.5% Aug 39s steepeners
- Buy 100% risk, or $25mn notional of T 4.75% Feb-37s (yield: 4.165%; bpv: $1010/
mn)
- Sell 98% risk, or $22mn notional of T 4.5% Aug-39s (yield: 4.272%; bpv: $1125/
mn)
- Weighted spread is -2.1bp. One-month weighted carry is -0.2bp and roll is 0bp
• Unwind 50:50 weighted 3s/5s/7s belly-richening buterflies
- Unwind short 50% risk, or $45mn notional of T 4.25% Mar-27s

- Unwind long 100% risk, or $56.3mn notional of T 4.25% Feb-29s
- Unwind short 50% risk, or $20.9mn notional of T 4.25% Feb-31s
-(US Fixed Income Markets Weekly, 3/15/24: P/L since inception: 2.1bp)
• Maintain 5s/30s steepeners
- Stay long 100% risk, or $112mn notional of T 4.875% Oct-28s

- 100% risk, or $29.9mn notional of T 4.75% Nov-53s
- (US Treasury Market Daily, 11/22/23: P/L since inception: -15.1bp)
• Maintain 75%/6% weighted 5s/10s/30s belly-cheapening butterflies
- Stay long 75% risk, or $43mn notional of T 4.625% Sep-28s

- Stay short 100% risk, or $33.3mn notional of T 3.875% Aug-33s
- Stay long 6% risk, or $1mn notional of T 4.125% Aug-53s
- (US Fixed Income Markets Weekly, 9/29/23: P/L since inception: -10.1bp)
23
JPMORGAN
Figure 23: Closed trades in last 12 months

P/L reported in bp of yield unless otherwise indicated
TRADE ENTRY EXIT P/L
Duration
5-year duration longs 05/19/23 06/29/23 -45.8
5-year duration longs 08/04/23 09/08/23 -27.6
5-year duration longs 10/03/23 11/02/23 14.9
7-year duration shorts 11/03/23 11/22/23 -7.9
30-year duration shorts 12/15/23 01/04/24 10.9
Equi-notional 2s/5s flatteners 05/31/24 06/06/24 16.0
Curve
10s/30s steepener 12/16/22 09/29/23 3.0
10s/30s steepener 11/03/23 11/22/23 -7.3
2s/5s flatteners 12/08/24 05/17/24 6.0
Relative value
100:95 weighted Nov-43s/May-48s flatteners 04/28/23 06/15/23 3.8
52:59 10s/20s/30s belly-cheapening butterflies 07/07/23 07/14/23 4.0
97:100 weighted Aug-32s/Aug-33s steepeners 06/09/23 08/03/23 1.6
100:96 weighted 3.5% Feb-39 / 3.75% Nov-43 flatteners 07/28/23 08/16/23 3.2
2.75% Aug-32/ 3.5% Feb-39 steepeners 01/10/24 01/26/24 5.2
20s/ old 30s flatteners 02/15/24 05/10/24 -2.6
100:97 weighted 3.75% Apr-26/ 4.625% Sep-26 flatteners 04/12/24 05/17/24 2.2
100:95 weighted 4% Feb-28 / 4% Feb-30 steepeners 02/23/24 05/31/24 -6.6
50:50 weighted 3s/5s/7s belly-richening buterflies 03/15/24 06/14/24 2.1
Number of positive trades 14
Number of negative trades 6
Hit rate 70%
Aggregate P/L 3.7
Source: J.P. Morgan
24
Phoebe White AC (1-212) 834-3092 Afonso Borges (1-212) 834-4349 North America Fixed Income
phoebe.a.white@jpmorgan.com afonso.borges@jpmorgan.com Strategy
JPMORGAN
Jay Barry (1-212) 834-4951 Liam L Wash (1-212) 834-5230 14 June 2024
john.f.barry@jpmorgan.com liam.wash@jpmchase.com
TIPS Strategy
Add longs in 1Yx1Y inflation swaps
• TIPS sharply underperformed, with 5-year breakevens 20bp narrower on a carry-adjust-
ed basis versus their recent wides two weeks ago. We acknowledge the fundamental
backdrop has turned less favorable for inflation markets, but valuations are starting to
appear cheap once again
• The softening in sequential core CPI inflation the last two months has reduced fears
about reaccelerating inflation. However, we would be hesitant to extrapolate too much
of the May core CPI weakness
• With 5-year breakevens appearing cheap relative to our fair value framework and little
inflation risk premium priced in ahead of the November presidential election, we recom-
mend adding bullish exposure at the front end
• While carry on spot breakeven wideners turns negative in July, we prefer adding expo-
sure on a forward basis. 1Y1Y inflation swaps have underperformed along the curve and
are trading near 2-month lows. Add longs in 1Y1Y inflation swaps
• We take a closer look at the softening in supercore CPI in May. Airfares and motor vehi-
cle insurance alone can account for more than half of the step down between April and
May, and we do not see the weak readings in these categories as representative of the
trend
Market views
In a key event week for inflation markets, 5-, 10-, and 30-year breakevens are 13bp, 11bp,
and 8bp adjusted for the erosion of carry. Importantly, headline CPI-U NSA printed at
314.069 (0.17% m/m) in May, below the market fixing of 314.340. Energy prices declined
2.0%, a little more than we expected, while food prices increased a modest 0.1%. Mean-
while, the softer-than-expected 0.16% increase in core CPI was driven largely by weakness
in core services ex-housing components. Notably, airfares declined 3.6%, while motor vehi-
cle insurance CPI cooled sharply, declining 0.1% m/m, from an average 1.7% m/m increase
over the prior three months. Together, these two components can account for more than half
of the step down in super core CPI between April and May. Rent and OER CPI firmed a touch
versus the prior month, rising 0.39% and 0.43%, respectively, while core goods prices were
roughly flat on the month. Used car prices rose a bit less than we expected, rising 0.6%
(Figure 24). The downside miss on CPI was followed by weaker-than-expected PPI and
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import price data, and with these reports in hand, we estimate core PCE rose 0.14% m/m last
month, which would allow the year-ago rate to decline to 2.6%, from 2.8% in April (see US:
May import prices surprised lower, Michael Hanson, 6/14/24).
25
JPMORGAN
Figure 24: The step down in May core CPI was driven largely by weakeness Figure 25: After adjusting for carry, 5-year breakevens are 20bp narrower
in services ex-housing than their richest levels two weeks ago
Selected categories of core CPI as of May 2024; % 7/31/24 forward settle Apr-2029 and Apr-2028 TIPS breakevens; bp
% 3m
Category Weight % m/m saar % oya 230
Core Goods 23.68% -0.04% -1.2% -1.7%
New vehicles 4.62% -0.5% -4.4% -0.8% 220 Apr 2029s
Used cars and trucks 2.52% 0.6% -7.3% -9.3%
Apr 2028s
Other core goods 16.54% 0.0% 0.7% -0.8%
210
Core Services 76.32% 0.22% 4.7% 5.3%
Rent of primary residence 9.61% 0.39% 4.7% 5.3%
200
OER 33.55% 0.43% 5.3% 5.7%
Core services ex-rent & OER 33.16% -0.04% 4.2% 4.7%
190
Lodging away from home 1.68% -0.1% -0.7% -1.2%
Jan 24 Feb 24 Mar 24 Apr 24 May 24 Jun 24
Health insurance 1.01% 0.5% 8.2% -7.7%
Airline fares 0.94% -3.6% -17.5% 2.9%
Auto insurance 3.50% -0.1% 18.2% 20.3%
Other core services 27.71% 0.1% 3.5% 3.9%
Core CPI 100.00% 0.16% 3.3% 3.4%
Source: BEA, BLS, J.P. Morgan Source: J.P. Morgan
With this week’s move, breakevens have broken below the bottom end of the range they
have held over the last two months, and the front end of the curve has staged the largest
underperformance. Adjusted for carry, 5-year breakevens are 20bp narrower than their rich-
est levels reached just two weeks ago (Figure 25). As we look ahead, we acknowledge
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the backdrop for TIPS has turned less bullish across a number of dimensions. First,
following a series of upside surprises in core CPI in the first quarter, each of the last two
months have shown softening, reducing fears that inflation could be reaccelerating and add-
ing conviction that at least some of the strength in the earlier data could have reflected resid-
ual seasonality. Second, in recent months, the Fed’s reaction function has also lent some
support to the product, though this could now be shifting somewhat. Throughout the spring,
Chair Powell generally conveyed the message that strong growth and resilient labor markets
would not forestall rate cuts, as long as the Fed was gaining confidence that inflation was
slowing, but any unexpected weakening in labor markets would hasten rate cuts. This envi-
ronment contributed to an asymmetric empirical beta of real yield moves relative to nominal
yields (see TIPS Strategy, 4/5/24).
The SEP and press conference delivered following this week’s FOMC meeting conveyed
a sense of uncertainty and ambiguity around the future path of policy. The median dot for
2024 now shows one cut, down from three in March, though the median dot for 2025 and
2026 now show four cuts each (up from three in March), so the total number of cuts over
the next two and a half years is still nine, only with a later start. Interestingly, unlike previous
recent press conferences, Powell was not especially dovish, and his tone seemed aligned
with the SEP and other Committee communication products. Moreover, when asked where
the improvement in inflation into 2025, shown in the forecasts, is likely to come from, Chair
Powell’s response sounded much less optimistic than in prior press conferences. He pointed
to the progress made so far and stated, “these dynamics can continue as long as they contin-
ue… we can’t know what the future holds.” He stated that the May CPI report was “encour-
aging,” but cautioned that it comes “after several reports that were not so encouraging.” If
the Committee overall feels less comfort in the disinflationary process, they will likely need
to see not only a string of more benign inflation reports, but also greater evidence that labor
markets—and wage inflation—is continuing to soften, before cutting rates. We continue to
26
JPMORGAN
forecast the first rate cut in November (see FOMC guesses at fewer cuts in ‘24, Michael
Feroli, 6/12/24).
Third, TIPS were an attractive vehicle for adding duration earlier this year, not only given
an asymmetry in yield betas, but also because TIPS offered highly positive carry, as opposed
to the negative carry proposition in nominal duration space. However, this dynamic has also
shifted, given not only CPI seasonality but also the recent softening in seasonally-adjusted
headline inflation. With the downside surprise in May CPI, 5-year TIPS should incur -2.3bp
of carry in July, and incur -6.9bp of carry over the next three months (Figure 26). From a cvJ
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retail flow perspective, demand for inflation focused funds remains muted, with these funds
reporting $219mn of outflows in the week through Wednesday, and the four week moving
average remains close to flat (see The inflation fund landscape, 5/28/24).
Figure 26: Following the downside surprise in May CPI, TIPS carry should Figure 27: The narrowing in breakevens likely also reflects increased
turn negative in July liquidity premium, as TIPS cheapened on an IOTA basis in the flight-to-
Ex-ante 3-month carry on 5-, 10-, and 30-year TIPS; bp quality move
Asset swap spread (LHS) and IOTA (RHS) for the 0.625% Jul-32 TIPS; bp
Asset swap spread (LHS)
20 5Y 76 33
74 IOTA (RHS) 32
10 10Y
30Y 72 31
0 70 30
-10 68 29
66 28
-20
64 27
-30 62 26
Jun 23 Aug 23 Oct 23 Dec 23 Feb 24 Apr 24 Jun 24 Dec 23 Jan 24 Feb 24 Feb 24 Mar 24 Apr 24 Apr 24 May 24 Jun 24
Fourth, another technical dynamic driving TIPS valuations this week was the apparent
unwind of various carry trade strategies. Swap spreads narrowed, futures basis cheapened,
and implied swaption vols jumped, particularly for short expiries. Similarly, as we dis-
cussed week, we had seen an increase in trading of TIPS on asset swap over recent months,
as evidenced by transactions reported in SDR (see TIPS Strategy, 6/7/24). Against this back-
drop, it’s not surprising that TIPS cheapened versus SOFR this week. Moreover, TIPS tend
to underperform nominal Treasuries in a flight to quality move, given that TIPS volumes
are only about 3% of the volumes in the coupon Treasury market, and TIPS in the intermedi-
ate sector cheapened on an IOTA basis as well (Figure 27). If implied vols continue to rise,
-
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we think the liquidity premium embedded in TIPS breakevens could continue to increase,
driving further underperformance. However, we take comfort that some of these moves
across markets started to reverse midday Friday, and ultimately we do not see risk of broader
systemic spillovers from this week’s events (see Euro Cash, Global Fixed Income Markets
Weekly, 6/14/24).
Considering these factors, we think it will be difficult for breakevens to revisit their
local wides in the near term. However, we think the extent of the recent cheapening has
likely been overdone, and recommend adding bullish expressions at the front end of
the curve in a carry-efficient form. As we discuss below, we are concerned that markets
are taking too much signal from the -0.04% sequential decline in core services ex-housing
CPI in May, and still believe that the disinflationary process over the balance of the year is
likely to remain bumpy. Similarly, after appearing in line with fair value estimates last week,
27
JPMORGAN
5-year breakevens once again appear dislocated from our framework, with the residual
opening up to -14bp. Third, throughout the summer, we expect election risks will return to
the forefront, with tariff and trade policy uncertainty remaining front and center for markets.
While there is considerable debate at this stage around what is likely to be introduced and
what the net economic effects will be, we think the front end of the inflation curve should
embed some positive premium, in order to reflect these risks. Figure 28 shows that in the c
d
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S
U
6
1
m
h
b
-3
0
re2
p
sw
tio
fla
In
month following former President Trump’s victory in 2016, 2Yx3Y inflation swaps rose
nearly 30bp. Though the initial response to a Biden victory in 2020 was negative for infla-
tion markets, the market reaction was muted and ultimately short-lived.
Figure 28: Inflation swaps rose 20-30bp in the aftermath of the 2016 US Presidential election
Change in 1Y1Y, 2Y3Y, 5y5Y, and 10Y20Y inflation swap spreads 2 and 4 weeks following the 2016 and 2020 US Presidential
election; bp
1Y1Y 2Y3Y 5Y5Y 10Y20Y
2020 2 week -5.5 -6.7 -4.3 -5.6
4 week 12.7 7.2 11.6 8.3
2016 2 week 11.0 22.4 23.8 20.6
4 week 21.2 27.9 25.0 22.6
Source: J.P. Morgan
Against this backdrop, we like adding tactical bullish exposure at the front end of the curve.
In cash space, forward 1Y implied breakevens constructed via various TIPS pairs are trading
back near 220bp, translating to below 2% PCE inflation, and we will look to add these types
of structures as liquidity becomes available (Figure 29). For now, we recommend adding
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longs in 1Y1Y inflation swaps, which are back near their lowest levels of the last two
months and have underperformed along the forward curve, as shown in Figure 30 (see 2-
k
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p
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Trade recommendations).
Figure 29: Forward 1-year breakevens implied by Oct 26/27 TIPS have Figure 30: The front end has underperformed along the forward curve with
fallen towards 220bp, translating to below 2% PCE 1Y1Y back near 2-month lows
1-year forward breakeven bootstrapped from Oct-maturity TIPS; bp Forward 1-year CPI inflation swap rates; %
2.70 Current
250
May-31
240 2.60
230 2.50
220 2.40
Oct 25/26
210 Oct 26/27 2.30
Oct 27/28 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
200
Jan 24 Jan 24 Feb 24 Mar 24 Mar 24 Apr 24 May 24 May 24 Jun 24 Forward, years
Investigating the weakness in May supercore CPI

We are hesitant to extrapolate too much of the weakness in this week’s print, especially with
airfares and autos accounting for more than half of the step down in supercore CPI between
April and May. The sharp decline in airfares was likely aided by the drop in jet fuel prices
over the month, which has begun to reverse over the last two weeks, and our commodity
strategists expect energy prices to continue higher this quarter alongside a pick up in summer
travel demand (see Oil Markets Weekly, Natasha Kaneva, 6/6/24). Separately, in the year
through April, auto insurance accounted for about half of the 4.7% oya increase in supercore
28
JPMORGAN
CPI, so if the soft May reading in this category is the start of a new trend, it would be a
meaningful development. However, while the forward path of auto insurance inflation is
likely slower relative to the 23% oya pace observed through April, we think the May figure
understates the underlying trend.
As we’ve highlighted in the past, the surge in auto insurance prices over the past year has
largely been a reflection of pandemic-related distortions that were still making their way
through the system. A surge in cost inflation drove insurance industry margins negative, and
it has taken time for premium hikes to be implemented, for two reasons: (1) Insurers have
to request permission from state regulators to increase premium prices, and (2) most auto
insurance policies have a 6- or 12-month term, suggesting it can take up to a year for a book
to be fully repriced (see TIPS Strategy, 4/12/24). Importantly, NY, NJ, and CA lagged other
states in approving premium increases, announcing approvals for significant increases for
various insurers last December, for implementation in 2024. For example, these three states
approved Allstate auto insurance rate increases of 30.0%, 14.6%, and 20.0%, respectively,
and approved similar increases for other insurance providers. While insurance rates in other
states are likely now increasing at a slower pace, we have expected sequential increases in
these three states to remain elevated at least through mid-year or early fall, given the gradual
repricing of policies.
Against this backdrop, while we look for a slower pace of auto insurance inflation over the
second half of the year, it is hard to view the sequential decline in auto insurance CPI (both
on a seasonally- and nonseasonally-adjusted basis) as an indication of the trend. The future
path of pricing is likely to be dependent on trends in “loss cost,” i.e., the cost of covering
claims, as well as profitability. For the majority of the auto insurance industry, margins are
still negative. Moreover, while vehicle prices have been declining recently, particularly for
used cars, other drivers of loss cost have continued to rise—including medical care/ hospital
services and auto maintenance and repair cost inflation. So what explains the weakness in
May? It’s hard to say, but we would highlight that for the majority of geographic areas, other
than the three largest publication areas (NY, LA, and Chicago), prices are sampled bimonth-
ly, and the May weakness could represent some give-back from the 2.6% jump observed two
months prior. Ultimately, we think there could have been some outliers in the May sam-
ple, holding down the figure. As the sample rotates in June, we would expect the catego-
ry to show some bounceback relative to last month.
Trade recommendations
• Initiate 1Y1Y inflation swap longs
- Initiate long 100% risk, or $125mn notional of 1Yx1Y inflation swap (swap start: 6/17/25,
swap end: 6/17/26) at 239.3bp.
29
JPMORGAN
Figure 31: Trade performance over the past 12 months

P/L reported in bp of yield unless otherwise indicated
TRADE ENTRY EXIT P/L
Jul 24/Jul 25 BE wideners 5/10/2024 5/28/2024 11.7
10Yx20Y breakeven wideners 4/12/2024 4/26/2024 4.7
Long 5Y TIPS 3/20/2024 4/25/2024 -31.0
6mx1Y breakeven wideners 4/5/2024 4/19/2024 7.3
Old 10s/30s breakeven curve steepeners 2/23/2024 4/12/2024 -5.6
Long 1Y inflation swaps (hedged) 3/8/2024 4/5/2024 7.0
5-year TIPS longs 2/9/2024 3/7/2024 9.9
10-year energy-hedged BE narrowers 1/19/2024 1/30/2024 7.5
30-year breakeven narrowers 11/9/2023 12/7/2023 21.7
5Yx5Y inflation swap shorts 9/29/2023 10/13/2023 2.8
3Yx2Y breakeven narrowers 7/28/2023 9/12/2023 5.3
Beta-weighted 5Y breakeven wideners 6/9/2023 7/13/2023 5.1
2Yx3Y breakeven narrowers 5/11/2023 6/1/2023 9.6
AGGREGATE:
Number of trades 13
Number of winners 11
Hit ratio 85%
Aggregate P/L (bp of yield) 56.0
Source: J.P. Morgan
30
Srini Ramaswamy AC (1-415) 315-8117 Philip Michaelides (1-212) 834-2096 North America Fixed Income
srini.ramaswamy@jpmorgan.com philip.michaelides@jpmchase.com Strategy
JPMORGAN
Ipek Ozil (1-212) 834-2305 Arjun Parikh (1-212) 834-4436 14 June 2024
ipek.ozil@jpmorgan.com arjun.parikh@jpmchase.com
Interest Rate Derivatives

Pardon my French
• French politics roiled European sovereign bond markets this week, with US swap
spreads also experiencing some crossover impacts. We believe the reaction in US mar-
kets is likely overdone and unlikely to be sustained. In addition, our outlook for the Fed
balance sheet shows Reserves staying comfortably above $3Tn all year and O/N RRP
balances near $400bn in coming weeks, which should help keep financing rates stable,
and a near-flat Quarter-to-date outlook for banks’ AOCI suggests that bank demand for
USTs should remain robust. Thus, swap spread wideners are attractive across the board,
but especially at the front end where they are cheapest to fair value
• Softer inflation data and the Fed’s comments have helped to strengthen easing expecta-
tions while causing tail risks of additional rate hikes to recede. That said, the Fed will
likely still be patient in assessing disinflationary trends, and its own dots point to one
cut this year and four in the next. With OIS forwards too low relative to projections of
the funds rate, we find roll-up trades attractive as a theme. That said, carry is lower than
before, and warrants being selective in choosing trades that offer attractive carry-to-risk
characteristics …
• … receive in a blend of 3s and 5s on the swap curve, versus paying in a blend of Blues
and 12Mx3M. The former now appears cheap relative to the latter. In addition to relative
value, this trade offers positive carry which, while modest on an absolute basis, is attrac-
tive relative to risk
• Softer data and a patient Fed have also helped in pruning the tails of the distribution,
causing implied distributions to center around 0-3 cuts for the most part. Thus, policy
expectations are likely the most stable they have been all year, which should help short
gamma positions turn profitable without relying on mean reversion / less frequent delta
hedging. As a result, we turn bearish on short expiry volatility, particularly in long tails
where our projections suggest they are likely to be the most profitable
• Returns on short gamma positions remain exposed to a rise in rates however, and we
recommend pairing short gamma positions with a short in Greens in order to mitigate
risk as well as improve the carry
• On a relative value basis, we recommend buying the Feb 2037s versus Sep classic bond
contracts, either outright or on a swap spread switch basis. The 2037/2040 sector of the
spread curve has steepened in a manner that is not explained by moves in Term Funding
Premium and the broader term structure of spreads, and is instead likely due to the idio-
syncratic cheapening of the 2037 sector
Pardon my French
It was all about inflation and the Fed this week in US markets, until it wasn’t. The most
important event of the early part of the week was the release of the May CPI data on Wednes-
day, which came in softer than expectations at 0.2% MoM (or 0.16% before rounding) ver-
sus consensus expectations of 0.3%. Coming as it did after a period in which Fed easing
expectations have steadily been on the wane, this soft print helped put policy rate cuts
squarely back on the table for some time in 2H24. To be sure, the Fed is likely to want con-
tinuing corroboration of disinflation in coming months before it delivers the first rate cut.
The FOMC statement included an acknowledgement of "modest further progress" on infla-
tion, and the median dots signal one rate over 2H24 but four cuts in 2025 (see FOMC guesses
at fewer cuts in ’24, M. Feroli, 6/12/2024). All of this points to a continuing "wait-and-
31
JPMORGAN
watch" approach on the part of the Fed. Risks of further rate hikes are also lower this week,
because of the softer inflation data as well as Chair Powell's comments after the meeting
where he noted that rate hikes were not the base case expectation of anyone on the commit-
tee. Markets responded by lowering the tail risk of hikes priced into implied distributions,
and consolidating expectations into a narrower range of scenarios that go from a policy rate
that is unchanged to 3 or fewer cuts by YE24 (Figure 1). Although by no means a sure thing,
this marks the emergence of stability in policy rate expectations, after a lengthy period
where the cone of future outcomes has been significantly wide.
Figure 1: The beginnings of policy clarity, at least in the near term

Total weight for scenarios ranging from an unchanged funds rate to 3 25bp cuts, as calculated from a decomposition of the
implied probability distribution associated with Dec 2024 SOFR futures*; Dec 2023 - Current
1.0
0.8
0.6
0.4
0.2
0.0
Dec 23 Jan 24 Feb 24 Mar 24 Apr 24 May 24
Source: J.P. Morgan., CME
* We enumerate a list of scenario-specific Normal distributions with fixed standard deviations and means that are separated by 25bp, and then
require the implied distribution to be a weighted combination of these individual distributions. The weights are then solved for, by fitting to the
observed prices of calls and puts at various different strikes. For more details of our approach, see What’s the rush?
For US market participants, the Fed's wait-and-watch stance translates into a wait-and-seek-
carry approach to markets, albeit somewhat nervously. Recent political developments in
France appear to have spurred some de-risking in spread-carry trades in Europe, with some
crossover impact in the US markets and in swap spreads. While we are mindful of this risk,
this has likely mostly run its course and spillover impacts to US markets will likely remain
modest in coming weeks (for a more detailed discussion of the rationale behind this view,
see the discussion below on Swap Spreads). Thus, we cautiously expect that the US Rates
markets will continue to mostly be driven by shifts in policy expectations, which has been
the dominant principal factor in recent months by far.
On this front, with near term policy expectations becoming more stable, short volatility
positions in shorter expiries are likely to become more attractive. One way to see this
is to examine a variant of the empirical model that we have often used to project returns from
such strategies, that explicitly includes a metric of policy expectations stability (the same
metric shown in Figure 1). In Figure 2, we show this variation of our empirical model - as
one can see, the coefficients associated with our metric of policy expectations stability are
numerical significant and even comparable to the coefficients on implied volatility. This in
turn suggests that the recent rise in this metric has likely improved the outlook for short
gamma positions significantly. Indeed, short gamma positions, particularly in longer tails
such as 10s, are likely to be profitable going forward even when delta hedged daily (and
without seeking to benefit from mean reversion in a rangebound market). To be sure, while
short gamma returns are projected to be positive in 10- and 30-year tails, they are within one
standard error and not especially compelling statistically. Nevertheless, with the inflation
print as well as FOMC just behind us, the calendar is supportive as well and we turn tacti-
cally bearish on short expiry volatility.
32
JPMORGAN
Figure 2: Short gamma positions in longer tails are likely to be profitable going forward
Statistics from regressing* monthly short delta hedged straddle returns (bp/notional) against ex-ante implied vol (bp/day),
ex-ante metric of policy expectations stability** (unitless) and ex-ante ATMF (%), as well as current (6/13) values of drivers
and projection and normalized projection***
Coefficients T-stats Current Drivers
6Mx2Y 6Mx5Y 6Mx10Y 6Mx30Y 6Mx2Y 6Mx5Y 6Mx10Y 6Mx30Y 6Mx2Y 6Mx5Y 6Mx10Y 6Mx30Y
Intercept -278.4 -657.9 -1041.4 -1762.9 -14.7 -15.6 -13.3 -12.7
Ex-ante implied vol (bp/day) 26.1 73.0 127.4 255.2 14.9 16.0 13.3 12.3 7.02 6.81 6.32 5.57
Ex-ante metric of policy expectations stability 19.1 55.8 83.6 144.1 3.0 4.3 3.7 3.8 0.9 0.9 0.9 0.9
Ex-ante ATMF (%) 17.9 28.1 45.6 68.0 7.0 4.8 3.9 2.8 4.12 3.80 3.76 3.58
R-squared 70% 73% 66% 64%
Standard error 5.5 12.3 22.3 40.0
Projection -4.3 -4.4 10.8 32.7
Normalized projection -0.8 -0.4 0.5 0.8
Source: J.P. Morgan.

*Regression over past 5 months
** See Figure 1 for definition of metric of policy expectations stability
***Projection is calculated by using the current drivers and and the coefficients. Normalized projection is calculated by dividing the projection
by standard error
One attractive way to express a short gamma bias is to sell 6Mx10Y swaption straddles
on a delta hedged basis, paired with a short position in Greens. As Figure 3 shows, one
important risk to short gamma positions is a rise in medium term policy rate expectations.
Adding a carefully weighted short in Greens can help to mitigate that risk, while also
improving carry since short positions in Greens carry positively to the tune of 5bp per quar-
ter. Therefore, we recommend this trade (see Trade recommendations).
Figure 3: Forward Fed expectations are a key risk to the profitability of short gamma positions
Rolling 6-week returns on short 6Mx10Y straddles delta hedged daily (left, bp of notional), versus the rolling 6-week change
in 2Yx1Y forward swap yield (right, inverted, bp)
100 -60
Rolling 6wk short gamma
80 return -40
60 Rolling 6wk change in
Greens (right, inv.) -20
40
0
20
20
0
-20 40
-40 60
-60 80
A second approach to seeking carry is of course on the swaps yield curve. Although the
decline in yields this week and the increase in easing expectations is of course reasonable,
it is worth noting that forward OIS yields are now below both the Fed's median projection
as well as our own forecast (Figure 4). As a result, the case for "roll-up" carry trades on
the curve is stronger than it was before this week, and we continue to favor this as a
theme. Of course, as we have also stressed repeatedly, we have preferred to seek yield curve
carry in the form of well hedged carry trades, given that carry is lower overall on an absolute
basis, making the risk-reward somewhat poor in outright flatteners . Instead, we prefer
trade constructions that are well hedged and less exposed to directional shifts in rates,
while still offering attractive carry and slide on the yield curve. One example of such
a trade that is currently attractive is to receive fixed in a blend of 3s and 5s, while paying
fixed in a blend of 12Mx3M and 3Yx1Y (or, equivalently, selling Blues and U5 SOFR
futures). The equal-weighted blend of 3Mx3Y and 3Mx5Y swap yields has been nearly per-
fectly correlated to the equal-weighted blend of 12Mx3M and 3Yx1Y swap yields, with a
beta of ~1 and an R-squared of over 99%, but the weighted spread is now at the cheap end
33
JPMORGAN
of its YTD range (Figure 5). In addition, carry on the weighted spread is ~3bp per quarter,
which is modest on an absolute basis but attractive relative to the variation in the weighted
spread. Therefore, we now recommend receiving in 3s and 5s versus paying in 12Mx3M
and 3Yx1Y swaps (see Trade recommendations).
Figure 4: Forward OIS rates are below both the Fed’s median projections Figure 5: An equal-weighted blend of 3s and 5s has been extremely well
as well as our economists’ forecast correlated to the equal-weighted blend of Blues and 12Mx3M yields, but
Forward 1M OIS rates at FOMC meeting dates in 2024 and 2025 as of 6/7 and 6/14, the the weighted spread is now near the cheap end of its year-to-date range
JPM forecast for the Fed funds rate at those dates, and the median Fed dots for YE24 and 3Mx3Y + 3Mx5Y - 3Yx1Y - 12Mx3M weighted swap yield spread, bp
YE25; %
5.5 7-Jun 14-Jun 22

JPM Fed Dots
21
5.0
20
4.5 19
18
4.0
17
3.5 16
Jul Sep Nov Dec Jan Mar May Jun Jul Sep Oct Dec
24 24 24 24 25 25 25 25 25 25 25 25 15
Source: J.P. Morgan. Federal Reserve Source: J.P. Morgan.
Swap spreads
Swap spreads were most impacted by European developments this week, narrowing 2-3bp
across much of the curve and by as much as 5bp in the 20-year sector (Figure 6). Much of
this move came on Friday, as the selloff (on a spread basis) in European sovereign debt
appeared to spread beyond France.
With French elections about two weeks away, political developments could well continue
to haunt fixed income markets. But even in Europe, risk premia now appear overpriced and
our European fixed income strategists see sovereign debt valuations as offering attractive
entry points (see Global Fixed Income Markets Weekly: An endless week: U-turn on carry
trades, F. Bassi et al., 6/14/2024). For US market participants, there are three broad
questions to consider. First, should we see this week's European developments as a
de-leveraging event (which could impact global assets in broadly similar fashion) or a
re-pricing of European political and fiscal policy risk (in which case US Treasuries could
even benefit from a substitution effect, on the margin). We believe it is the latter, and there-
fore see any sustained narrowing of swap spreads as an unlikely prospect. Second, are there
other reasons to expect a rise in financing costs, perhaps through financial market
channels? Here, we think the answer is no. Thanks in part to a tapered pace of QT begin-
ning this month as well as stickier BTFP program balances, we project that Reserves will
remain comfortably above $3tn for the rest of the year, while O/N RRP balances will remain
near $400bn for at least a few months and over $300bn for the remainder of the year (Figure
7). Thus, repo financing costs are likely to remain quite stable in the US markets.
34
JPMORGAN
Figure 6: Swap spreads were impacted by European developments this Figure 7: We project that Reserves will remain comfortably above $3Tn
week, narrowing across much of the curve during 2H24, while O/N RRP balances will remain near $400bn for at least
Selected statistics for maturity matched swap spreads, 6/7 - 6/14; bp a few months and over $300bn for the remainder of the year
Current* and projected total Fed balance sheet assets, RRP, TGA, Reserves, and
Commercial bank deposits** through 2024, $bn
start chg end min mean median max RRP Commercial
End-of-the- Fed
2Y -11.1 -3.3 -14.4 -14.4 -12.3 -11.9 -11.1 O/N Foreign Total TGA Reserves Bank
month Assets
3Y -16.7 -3.4 -20.1 -20.1 -17.5 -16.8 -16.6 RRP RRP RRP Deposits
Swap spreads
5Y -24.5 -2.4 -26.8 -26.8 -24.8 -24.5 -23.9 Current 7310 448 385 833 650 3434 16271
7Y -33.9 -1.3 -35.3 -35.3 -33.7 -33.5 -32.5 Jun-24 7274 419 340 759 750 3372 16271
10Y -38.0 -3.0 -41.0 -41.0 -38.7 -38.1 -37.8 Jul-24 7229 392 340 732 775 3330 16287
20Y -64.9 -5.1 -70.0 -70.0 -66.2 -65.2 -64.9 Aug-24 7184 320 340 660 850 3281 16298
30Y -75.1 -2.2 -77.3 -77.3 -75.7 -75.6 -75.0 Sep-24 7138 346 340 686 775 3284 16351
Oct-24 7095 325 340 665 775 3263 16384
Nov-24 7052 303 340 643 775 3241 16416
Dec-24 6935 282 340 622 775 3145 16389
Source: J.P. Morgan. Source: J.P. Morgan., FRED, Federal Reserve H.4.1, Federal Reserve H.8
* Current as of 6/13/2024 Fed H.4. release
** Deposits as of 6/14/2024 Fed H.8. release
The third question to consider is whether recent developments could impair demand
for Treasuries, similar to how the regional banking stresses weakened the outlook for bank
demand last year. Here too, the likely answer is no. Banks have been growing their UST
holdings recently, as is typical in the aftermath of the last hike of a cycle (Figure 8).
Although this behavior was delayed a little because of the regional banking stress in 1Q23,
banks are collectively back to growing their UST holdings. Moreover, although there are
two more weeks to go in this quarter, rates are close to flat so far which means that AOCI
changes are likely to be also close to flat (Figure 9) and not become a drag on bank capital
in the aggregate. Thus, with tail risks of additional rate hikes receding on the back of
softer data, we see UST demand from bank as supportive going forward.
Figure 8: Banks have been growing their UST holdings recently, as is Figure 9: Rates are close to flat this quarter so far which means that AOCI
typical in the aftermath of the last hike of a cycle changes are also likely to be close to flat
Increase in UST securities holdings of banks versus # of weeks since last hike in 2019 Quarterly change in AOCI for the top 4 and next 10 banks* ($bn) in previous quarters,
hiking cycle and current cycle; % projected change in AOCI for the top 4 and next 10 banks** in 2Q24, and quarterly change
in 5Y UST (right, inv; %)
15% Actu Proj.

20 -1.0
After first ease
10 -0.5
10%
0 0.0
5%
-10 0.5
0% 2019 -20 1.0

Top 4
Current -30 Next 10 1.5
-5% Chg in 5Y UST (right, inv)
0 5 10 15 20 25 30 35 -40 2.0
# of weeks since the last hike in the cycle 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24
Source: J.P. Morgan., FRED Source: J.P. Morgan., Bloomberg Finance L.P., FFIEC
* Four top banks include JPM, BAC, C, WFC; next ten largest banks include GS, MS, USB, PNC, TFC,
SCHWAB, COF, BK ,STT, AMEX
** For details of our methodology, see Polar vortex duration extension
In summary, we view the cheapening in US Treasuries (versus swaps) as unlikely to be

sustained, and therefore see recent moves as an opportunity to initiate wideners. After
35
JPMORGAN
this week's moves, swap spreads are narrow to fair value in every maturity sector, but this
is especially pronounced at the front end (Figure 10). Therefore, we now recommend
maintaining a widening bias in swap spreads across the curve, but especially at the
front end.
Figure 10: Swap spreads are now narrow to fair value in virtually every maturity sector, but this is most
pronounced in the front end of the
Actual maturity matched swap spread minus fair value* for 2Y maturity matched SOFR swap spreads, past 1 year; bp
6
4
2
0
-2
-4
-6
Jun 23 Aug 23 Oct 23 Dec 23 Feb 24 Apr 24
* Fair values are computed by adding our Term structure baseline swap spread values and our swap spread deviation relative to the term
structure of swap spreads across each sector (see Term Funding Premium and the Term Structure of SOFR Swap Spreads for details)
On a relative value basis, we now recommend positioning for a richening of the Feb '37s
versus surrounding bonds broadly, or versus the Feb 40s in particular, on a spread
switch basis. As seen in Figure 11, the Feb 37s/Feb 40s maturity matched swap spread
curve has been pretty stable and noisy, but has steepened significantly recently. The timing
of this steepening might suggest, at first glance, that this is more to do the roll into Sep
Treasury futures contracts since Feb 40s are CTD into the Sep classic bond contract. But that
is not the case, and the cheapening of the 2037 sector has been the real driver of this steepen-
ing in the spread curve. Moreover, the steepening of the spread curve appears unrelated to
broader trends in term funding premium. As we have noted elsewhere (for details on the
term structure of swap spreads and its link to Term Funding Premium, see Term Funding
Premium and the Term Structure of SOFR Swap Spreads ), decreases in term funding premi-
um should steepen spread curves. But while it is true that term funding premium is in fact
modestly lower in recent weeks, the steepening of the swap spread term structure in the
2037-40 sector has been vastly in excess of what might be expected based on moves in term
funding premium (Figure 12). Lastly, we also note that the Feb '37s are the smallest issue
in that sector, and scarcity effects would also argue in favor of a richening relative to sur-
rounding bonds. Therefore, we recommend paying in Feb 2037 maturity matched swap
spreads versus receiving in USU4 invoice spreads, since the Feb 40s are CTD into USU4
and switch optionality is minor (see Trade recommendations). A simpler variation on this
theme is to simply buy the Feb 37s versus selling USU4 (see Trade recommendations).
36
JPMORGAN
Figure 11: The Feb 37s/Feb 40s maturity matched swap spread curve is Figure 12: The slope of the term structure of swap spreads in the 2037-2040
typically noisy and stable, but is now at significantly steep levels relative sector has recently decoupled from Term Funding Premium which is a
to recent history largely due to a cheapening of the Feb reflection of the slope of the broader term structure of spreads
4.625% Feb 2040 maturity matched swap spread minus 4.75% Feb 2037 maturity The slope of the term structure of maturity matched swap spreads in the 2037-40 sector*
matched swap spread, past 6 months; bp (left, bp per year), versus Term Funding premium** (right, bp/year, inverted***)
-10 -4.0 2.4
-12 -4.5 2.8
-14 -5.0 Term funding Slope of 2037-40 term 3.2

premium (right, structure (left)
3.6
-16 -5.5
4.0
-18 -6.0
4.4
-20 -6.5
4.8
-22 -7.0
Jan 24 Feb 24 Mar 24 Apr 24 May 24 Jun 24 Jan 24 Feb 24 Mar 24 Apr 24 May 24 Jun 24
Source: J.P. Morgan. Source: J.P. Morgan.

* Calculated by regressing maturity matched swap spreads on all the bonds ranging from the Feb 2036
to Feb 2040, versus remaining years to maturity, as of each date in this time period.
** Term Funding Premium is defined as the negative of the slope of a regression of maturity matched
swap spreads versus modified duration in benchmark sectors (2Y, 3Y, 5Y, 7Y, 10Y, 20Y and 30Y) on
any given day
*** Term Funding Premium is shown on an inverted scale because it is defined as the negative of the
slope of the term structure, as noted above
37
JPMORGAN
Trading Recommendations
• Sell 6Mx10Y swaption straddles on a delta hedged basis, paired with a short posi-
tion in Greens
Short volatility positions in shorter expiries are likely to become more attractive with
near term policy expectations becoming more stable. Our short gamma returns model
suggests that short gamma positions, particularly in longer tails such as 10s, are likely
to be the most profitable going forward. Adding a carefully weighted short in Greens can
help to mitigate the risk of a rise in medium term policy rate expectations, while also
improving carry by ~5bp per quarter.
-Sell $100mn notional 6Mx10Y ATMF swaption straddles. (Notification date: 2024-
12-16, swap tenor: 10Y, ATMF: 3.707%, strike: 3.707%, spot premium: 469.8bp per
notional, forward premium: 482.8bp per notional, bpvol at inception: 6.52bp/day). This
trade assumes active delta hedging every business day.
-Pay-fixed in $60mn notional of a 6/14/26x1Y SOFR swap at a yield of 3.622% (PVBP:
$92.0/bp per mn notional). This hedge ratio reflects our best
• Receive in 3Mx3Y and 3Mx5Y swaps versus paying in 3Yx1Y and 12Mx3M swaps
Forward OIS yields are now below both the Fed's median projection as well as our own
forecast, which makes the case for "roll-up" carry trades on the curve stronger. The
equal-weighted blend of 3Mx3Y and 3Mx5Y swap yields has been nearly perfectly cor-
related to the equal-weighted blend of 12Mx3M and 3Yx1Y swap yields, with a beta of
~1, but the weighted spread is now at the cheap end of its YTD range. In addition, the
weighted spread offers modest positive carry of ~3bp per quarter.
-Receive-fixed in $100mn notional of a 09/14/24x3Y SOFR swap at a yield of 4.070%
(PVBP: $286.4/bp per mn notional). Receive-fixed in $67.1mn notional of a
09/14/24x5Y SOFR swap at a yield of 3.850% (PVBP: $426.7/bp per mn notional).
-Pay-fixed in $320.8mn notional of a 06/14/27x1Y SOFR swap at a yield of 3.507%
(PVBP: $89.3 /bp per mn notional). Pay-fixed in $1197.8mn notional of a 06/14/25x3M
SOFR swap at a yield of 4.206% (PVBP: $23.9/bp per mn notional). This trade uses risk
weights of 1.0/1.0/-1.0/-1.0 on the 3Mx3Y/3Mx5Y/3Yx1Y/1Yx3M swaps respective-
ly.
• Pay in Feb 2037 maturity matched swap spreads versus receiving in USU4 invoice
spreads
Feb 37 / Feb 40 (CTD into the USU4 contract) maturity matched swap spread has idio-
syncratically steepened recently, likely due to the cheapening of the Feb 37 sector, and
the steepening is in excess of what would have been expected by moves in term funding
premium. Additionally, the scarcity effects would also argue for richening of Feb 37’s
to the surrounding issues. Therefore, we recommend positioning for a relative richening
of the Feb 37 issues by paying in spreads versus receiving in USU4 invoice spreads
-Sell 1000 Sep US contracts (USU4 @ 120-13, current CTD 4.625% Feb ‘40s, implied
CTD forward yield 4.268%) versus receiving fixed in $114.8mn notional of a forward
starting SOFR swap (swap start 9/3/2024, maturity 2/15/2040, coupon 3.766%, forward
BPV $1161.0 per $1mn notional) at an implied forward maturity matched swap spread
of -50.2bp.
-Pay fixed in 4.75% Feb 15 2037 maturity matched SOFR swap spreads. Buy $146.5mn
notional of the 4.75% Feb 15 2037 (yield: 4.172%, PVBP: $1009.4/bp per mn notional),
and pay fixed in $148.2mn notional of a maturity matched SOFR swap (coupon:
3.801%, PVBP: $996.6/bp per mn notional) at a swap spread of -37.1bp.
• Buy Feb 37s versus selling USU4 Futures
Same rationale as above, but a simple version of the above trade where we recommend
38
JPMORGAN
buying Feb 37’s versus selling USU4 futures

-Sell 1000 Sep US contracts (USU4 @ 120-13, current CTD 4.625% Feb ‘40s). Buy
$146.5mn notional of the 4.75% Feb 15 2037 (yield: 4.172%, PVBP: $1009.4/bp per mn
notional).
• Unwind long 2Yx5Y swaption straddles on a delta hedged basis, versus 6Mx1Y /
18Mx1Y flatteners
This trade has outperformed our expectations and we recommend unwinding at a profit
of 3.6abp. For original trade write up, see Fixed Income Markets Weekly 2024-06-07.
• Unwind 1:0.9 risk weighted 20s/30s maturity matched swap spread curve steepen-
ers
of 3.9bp. For original trade write up, see Fixed Income Markets Weekly 2024-05-31.
• Unwind conditional exposure to a flatter 1s/2s swap yield curve in a rally using 1Y
expiry receiver swaptions
of 4.0bp. For original trade write up, see Fixed Income Markets Weekly 2024-04-05.
• Maintain 3M forward 10s/30s steepeners (1:1.5 risk weighted) paired with M5/Z5
3M SOFR futures flatteners
P/L on this trade is currently -2.9bp. For original trade write up, see Fixed Income Mar-
kets Weekly 2024-06-07.
• Maintain TU/TY invoice spread curve flatteners (1:0.35 weighted)
• Continue to Pay-fixed in 4.625% Feb ‘26 maturity matched swap spreads
• Maintain 1:0.75 risk weighted 7s/10s maturity matched swap spread curve steep-
eners
• Continue to Pay-fixed in 4.375% Aug ‘28 maturity matched swap spreads
P/L on this trade is currently 0.1bp. For original trade write up, see Fixed Income Mar-
• Continue to pay-fixed in 4% Feb 2034 maturity matched swap spreads
• Maintain 15Mx3M / 1YX1Y forward swap curve flatteners, paired with 20% of the
risk in a long in 18Mx3M and a 24% risk weighted short in 3Mx5Y forward swaps
• Maintain 5s/30s spread curve flatteners
• Continue to overweight 1Yx10Y straddles versus a gamma-neutral amount of
1Yx15Y straddles
P/L on this trade is currently -0.9abp. For original trade write up, see Fixed Income Mar-
39
JPMORGAN
• Maintain 3M forward 10s/15s swap curve steepeners paired with 25% risk in 3M
forward 3s/7s flatteners
P/L on this trade is currently 2bp. For original trade write up, see Fixed Income Markets
Weekly 2024-04-26.
• Continue to pay in 1.875% Feb 2027 maturity matched swap spreads
• Stay long A+100 1Yx5Y payer swaptions versus selling A-100 1Yx5Y receiver
swaptions, delta-hedged daily, to position for a correction in skew
• Maintain long 65% risk weighted 1Yx10Y swaption volatility versus selling 1Y for-
ward 2Yx10Y swaption volatility, synthetically constructed via suitably weighted
1Yx10Y and 3Yx10Y swaptions
• Continue to overweight 6Mx5Y and 6Mx30Y swaption volatility (vega weights of
0.32 and 0.76, respectively) versus selling 6Mx10Y swaption volatility
• Maintain 7s/10s swap spread curve steepeners paired with 25% risk in a 7s/10s
UST curve steepener
• Maintain conditional exposure to a steeper 10s/20s swap yield curve in a selloff
using 9M expiry payer swaptions
• Stay long 1Yx30Y volatility versus 1Y forward 1Yx30Y volatility, synthetically
constructed via suitably weighted 2Yx30Y and 1Yx30Y swaptions
• Maintain 5s/10s off-the-run swap spread curve steepeners (100:60 weighted)
• Maintain shorts in 3Yx30Y straddles with less frequent delta hedging
• Maintain Z5/U6 SOFR futures flatteners paired with H6/Z6 SOFR futures steep-
eners (0.85:1 risk weighted)
Closed trades over the past 12 months

P/L reported in bp of yield for swap spread, yield curve and misc. trades, and in annualized
bp of volatility for option trades, unless otherwise specified
Note: trades reflect Thursday COB levels, and unwinds reflect Friday COB levels
40
JPMORGAN
Trade Entry Exit P/L

Spreads and basis
4s/5s swap spread curve flatteners 6/2/2023 7/14/2023 4.0
Initiate 0.45:1 risk weighted 2s/3s swap spread curve flatteners paired with a 20% beta-
5/19/2023 7/28/2023 (8.2)
weighted M5/M6 SOFR futures steepener
10Y spread widener 7/14/2023 7/28/2023 0.7
2Y spread widener 6/2/2023 8/18/2023 1.6
10Y spread narrower 7/28/2023 8/18/2023 1.1
10Y spread narrower 8/25/2023 9/8/2023 1.6
3Y spread widener 8/18/2023 9/22/2023 (0.2)
FV invoice spread wideners by buying FVZ3 and paying fixed in a forward
9/8/2023 9/29/2023 (2.2)
starting swap
Initiate 10s/30s swap spread curve flatteners 9/15/2023 10/13/2023 0.3
2Y spread narrowers 10/13/2023 10/27/2023 1.2
5s/10s swap spread curve flatteners, paired with a 10% risk-weighted 5s/10s Treasury
10/13/2023 12/8/2023 1.2
curve flattener
FV/UXY invoice spread curve flatteners , paired with a 10% risk-weighted FV/UXY
10/13/2023 12/8/2023 1.7
Treasury futures curve flattener
Initiate swap spread narrowers in the 2Y sector 11/3/2023 12/8/2023 3.9
Initiate swap spread wideners in the 5Y sector 11/3/2023 12/8/2023 (3.2)
Initiate 20s/30s swap spread curve flatteners hedged with a 35% risk-weighted 20s/30s
9/29/2023 1/5/2024 0.2
Treasury curve flattener
Initiate swap spread wideners in the 5Y sector 1/5/2024 1/19/2024 4.2
Pay in 1.375% Nov ‘31 maturity matched swap spreads paired with 5% risk in 5s/10s
1/10/2024 1/26/2024 2.4
OTR Treasury curve steepeners
Initiate swap spread narrowers in the 30Y sector 1/5/2024 2/2/2024 0.2
Maintain a widening bias on swap spreads in the belly but switch to the 2.625% Feb
1/19/2024 2/23/2024 2.4
2029 issue
Maintain a widening bias on swap spreads in the belly using the 2.625% Feb 2029
issue, but hedge the narrowing risk from higher implied volatility with a long in 2Yx2Y 1/19/2024 2/23/2024 2.7
swaption straddles
Initiate 2s/5s (100:60 weighted) maturity matched swap spread curve steepeners 1/26/2024 2/23/2024 (3.3)
Pay-fixed in 2.125% May ‘26 maturity matched swap spreads 3/15/2024 3/22/2024 3.6
Pay-fixed in 1.875% Jul ‘26 maturity matched swap spreads 3/22/2024 4/5/2024 3.4
Initiate 20s/30s 1.33:1 wtd maturity matched spread curve steepeners hedged with a
30% risk weighted 20s/30s steepener, but use an equi-notional blend of the Nov 53s 2/23/2024 4/12/2024 (2.5)
and Aug 53s to create a synthetic approximate par bond in the 30Y leg
Initiate 30Y swap spread wideners 3/15/2024 4/12/2024 (0.1)
Pay in 4% Jan ‘27 maturity matched swap spreads 4/5/2024 4/26/2024 2.2
Initiate 10Y swap spread wideners using the Nov ‘33 issue 3/8/2024 5/17/2024 0.9
Initiate exposure to a steeper 7s/10s 1:0.75 weighted swap spread curve, and we
5/10/2024 5/28/2024 0.3
recommend implementing the 7Y narrower leg with TYM4 invoice spreads
Initiate 1:0.9 risk weighted 20s/30s maturity matched swap spread curve steepeners 5/31/2024 6/14/2024 3.9
41
JPMORGAN
Duration and curve Entry Exit P/L

Initiate 6M forward 10s/30s flatteners, paired with 25% long in 6Mx2Y 05/12/23 07/07/23 1.5
Position for a cheaper 47:55 weighted 7s/10s/20s swap butterfly in a selloff 05/19/23 07/07/23 2.6
Initiate conditional 10s/30s flattener in a selloff constructed with 3M expiry payer
swaptions, financed by selling 17% of the forward DV01 risk in 3Mx3Y payer swaptions 06/02/23 07/07/23 5.7
to make the package premium neutral
Conditional richening of the belly of a 1s/5s/20s swap butterfly in a rally using 6M expiry
01/20/23 07/14/23 0.1
receiver swaptions
Initiate 2Y forward 5s/30s steepeners hedged with a 15% weighted long in U3 3M
07/07/23 07/14/23 12.2
SOFR futures and a 35% weighted short in U4 3M SOFR futures
Initiate 10s/15s swap curve flatteners hedged with a 15% risk-weighted long in the 7Y
06/09/23 08/04/23 (6.8)
sector
Initiate UXY / US treasury futures curve flatteners hedged with a 15% risk-weighted long
06/09/23 08/04/23 (28.0)
in the TY sector
2Yx1Y / 3Mx15Y flattener, plus 58% long in 2Yx1Y and 8% short in 6Mx6M 07/14/23 08/18/23 (26.3)
Initiate 6M fwd 1s/20s flatteners paired with 20% risk weighted longs in 3Mx6M and
07/28/23 08/18/23 (35.7)
60% risk-weighted longs in Reds
Initiate conditional exposure to a flatter 1s/10s swap yield curve in a selloff using 3M
07/28/23 08/18/23 (6.2)
Initiate 3M forward 2s/7s swap curve flatteners hedged with a 35% risk weighted long in
08/04/23 08/18/23 (13.9)
the 1Yx1Y sector
Initiate 3M forward 3s/5s flattener hedged with a 15% risk weighted long in the 5th 3M
08/04/23 08/18/23 (7.7)
SOFR futures contract
Initiate 2Y forward 1s/10s swap curve steepeners paired with equal risk in a 3M forward
08/18/23 08/25/23 4.7
3s/15s swap curve flattener
Sell the belly of the U4/H5/U5 3M SOFR futures butterfly (-0.43:1:-0.64 risk weighted) 09/08/23 09/22/23 2.3
Initiate 3M forward 2s/10s swap curve steepeners paired with 110% of the risk in
09/15/23 09/22/23 4.9
Reds/Greens flatteners
Initiate 3Y forward 2s/10s swap curve steepeners, paired with 1Y forward 1s/5s swap
09/22/23 09/29/23 5.0
curve flatteners (33% risk weighted)
Initiate 2Y forward 2s/30s swap curve steepeners paired with equal risk in a 3M forward
08/25/23 10/20/23 (32.1)
Initiate 3Y forward 3s/30s swap curve steepeners paired with 63% risk in a 3M forward
09/08/23 10/20/23 (18.3)
Initiate M4/Z4 SOFR futures curve steepeners paired with 55% of the risk in H4/Z5 3M
09/22/23 10/20/23 (9.9)
SOFR futures curve flatteners
Initiate conditional exposure to a flatter 2s/10s swap yield curve in a rally using 6M
09/29/23 11/03/23 (9.2)
Initiate 3M fwd 5s/10s swap curve flatteners paired with 2Y fwd 5s/10s swap curve
10/27/23 11/03/23 4.6
steepeners (50:100 risk weighted)
Initiate conditional exposure to a flatter 5s/10s swap yield curve in a rally using 3M
10/27/23 11/03/23 0.8
Initiate 2Y fwd 2s/5s curve flatteners paired with 25% risk in a 1st/5th SOFR futures
11/03/23 11/22/23 5.8
curve flattener
Initiate 6M fwd 5s/15s curve flatteners paired with equal risk in 3Y fwd 2s/15s
11/03/23 11/22/23 4.6
steepeners
Buy the belly of a 40:65 weighted Z4/Z5/Z6 3M SOFR futures butterfly 11/03/23 11/22/23 5.6
Initiate 9M fwd 1s/10s flatteners paired with a 50% risk weighted long in March 2025 3M
11/09/23 11/22/23 15.8
SOFR futures
Initiate 3Mx1Y / Greens weighted flattener (1:0.8 weighted) paired with 80% risk in a 3M
01/05/24 01/26/24 2.9
forward 2s/10s swap curve steepener
Initiate U5/M6 SOFR futures curve flatteners paired with 110% of the risk in Z5/U6 3M
12/15/23 02/02/24 1.6
SOFR futures curve steepeners
Buy the belly of a 35:65 weighted H5/H6/Z6 3M SOFR futures butterfly 12/15/23 02/02/24 1.9
Initiate 1Yx2Y / 3Mx30Y swap yield curve steepeners paired with 65% risk in a Reds /
01/19/24 02/02/24 1.1
10Yx5Y swap yield curve flattener
Receive fixed in the belly of a 6M forward 2s/7s/30s swap butterfly (40:69 weighted) 01/19/24 02/02/24 0.1
Initiate conditional exposure to a composite flattener in a selloff by buying 3Mx2Y payer

swaptions (100% risk) versus selling 3Mx5Y and 3Mx30Y payer swaptions (24% and 02/02/24 02/23/24 14.3
100% risk respectively)
Buy H5 and Z5 3M SOFR futures contracts (30:100 weighted) versus selling U4 3M
SOFR futures contracts (100% risk weight) and pay-fixed in 6M forward 10Y swaps 02/09/24 02/23/24 5.8
(40% risk weight)
Initiate exposure to rising term premium by selling the belly of a 35/65 weighted 3M
12/08/23 03/08/24 (1.5)
forward 5s/10s/15s butterfly
Initiate SFRM5 / Blues flatteners paired with a 110% risk weighted 3M forward 2s/10s
03/01/24 03/22/24 3.3
steepener
Initiate 3M forward 3s/20s swap curve steepeners, paired with 85% of the risk in a
03/08/24 04/05/24 3.2
SFRM5 / 3Mx10Y curve flattener
Initiate 2Y forward 2s/5s swap curve steepeners paired with 40% risk in 3M forward
01/26/24 04/12/24 (11.4)
2s/5s flatteners
03/22/24 04/12/24 5.2
expiry payer swaptions
Initiate conditional exposure to a flatter 18M/5Y swap yield curve in a selloff using 6M
04/05/24 04/12/24 3.1
02/23/24 04/26/24 (9.4)
Initiate 1Y forward 2s/5s swap curve flatteners, paired with weighted longs in H5 and H6
03/22/24 04/26/24 (9.5)
3M SOFR futures (20% and 10% respectively)
Initiate SFRM5 / 3Mx5Y flattener, hedged with a 20% risk weighted long in Reds 04/05/24 04/26/24 (5.0)
Initiate 5th/9th SOFR futures curve flatteners hedged with a risk weighted amount 2Y
04/12/24 05/03/24 3.0
forward 2s/5s swap curve steepeners
Receive in the belly of a 0.625/1.0/0.375 weighted 3M forward 2s/7s/20s swap butterfly,

02/23/24 05/17/24 2.7
with an additional 15% risk weighted long in June 2024 3M SOFR futures
Initiate 3M forward 2s/3s swap curve flatteners hedged with a 14% risk weighted long in
02/23/24 05/17/24 0.4
the M4 3M SOFR futures
Initiate 3M forward 5s/15s swap curve flatteners paired with 70% risk in a 2Y forward
03/22/24 05/17/24 2.8
2s/20s swap curve steepener
Buy the belly of a 2s/5s/15s weighted swap butterfly (50:50 weighted) 04/12/24 05/17/24 2.4
Initiate 3M forward 1s/3s swap curve flatteners, hedged with a 65% risk weighted long in
05/03/24 05/17/24 2.1
the 3Mx3M sector and a 25% risk weighted short in the 15Mx3M sector
Buy the belly of a U5/M6/H7 SOFR Futures butterfly (-0.37:1:-0.63 risk weighted) 03/01/24 05/31/24 (0.7)
Initiate a Greens/Blues steepener paired with 55% of the risk in a SFRM5 / 3Mx5Y swap
03/15/24 05/31/24 2.2
curve flattener
Buy the belly of a Z5/U6/H7 3M SOFR futures butterfly (-0.33:1.0:-0.67 risk weighted) 04/19/24 05/31/24 1.8
Initiate 12Mx3M / 3Mx10Y flatteners, paired with 33% risk in a 3Mx2Y receive fixed
05/17/24 06/06/24 5.7
swap
Initiate 3M fwd 3s/15s flatteners paired with 85% risk in 2Y fwd 3s/30s steepeners 05/17/24 06/06/24 4.5
Initiate 3Mx1Y / 2Yx1Y forward swap curve flatteners as a bullish proxy 05/31/24 06/06/24 11.5
Initiate 3Mx1Y / 2Yx1Y swap curve flatteners paired with 45% risk-weighted pay-fixed
05/31/24 06/06/24 0.0
positions in 3Mx5Y swaps
Initiate conditional exposure to a flatter 1s/2s swap yield curve in a rally using 1Y expiry
04/05/24 06/14/24 4.0
receiver swaptions
42
JPMORGAN
Options Entry Exit P/L

Buy 6Mx5Y swaption straddles, versus weighted longs in S&P futures 06/09/23 07/07/23 12.8
Sell 1Yx10Y 50bp OTM receiver swaptions versus buying 50bp OTM payer swaptions 04/21/23 07/07/23 1.1
Buy 6Mx30Y swaption straddles versus selling a vega-neutral amount of 1Yx30Y

06/02/23 08/04/23 (2.7)
swaption straddles
Overweight 6Mx10Y swaption straddles versus vega-neutral amount of 1Yx10Y
07/07/23 08/04/23 1.0
swaption straddles
Sell 5Yx10Y straddles vs 9Mx30Y straddles 07/14/23 08/04/23 5.9
Overweight volatility in 5Y tails versus 15Y tails using 9M expiry swaptions 07/28/23 08/18/23 (7.9)
Sell volatility on 5-year tails paired with a pay-fixed swap overlay 08/18/23 08/25/23 6.2
Sell 6Mx30Y swaption straddles versus buying 6Mx10Y and selling 6Mx2Y straddles
08/04/23 09/08/23 0.0
on a suitably weighted and delta hedged basis
Sell 9M expiry single-look YCSO straddles on the 5s/30s curve, versus buying 35%
06/02/23 09/08/23 2.3
vega-weighted amount of 9Mx2Y swaption straddles
Sell volatility on 30-year tails paired with a pay-fixed swap overlay 08/25/23 09/15/23 8.6
Sell 2Yx5Y swaption straddles versus buying 10Yx10Y swaption straddles 08/25/23 09/15/23 5.3
Buy 10Yx10Y straddles 03/17/23 09/22/23 1.9
Sell 2Yx2Y swaption straddles versus buying a vega-neutral amount of 1Yx10Y
08/25/23 09/29/23 3.4
swaption straddles
Buy 1Yx10Y straddles versus selling 140% of the vega risk in 1Yx5Y straddles and
08/25/23 10/13/23 3.2
buying 50% of the risk in 1Yx2Y swaption straddles
09/08/23 10/13/23 (4.5)
swaption straddles
09/15/23 10/13/23 3.0
swaption straddles
Sell 6Mx30Y swaption straddles with a pay fixed swap overlay 09/22/23 10/13/23 (11.6)
Sell 1Yx30Y swaptions straddles versus buying a vega-neutral amount of 5Yx30Y
09/22/23 10/13/23 (1.5)
swaption straddles, paired with a 1Yx30Y pay-fix swap
Overweight 6Mx7Y swaption volatility versus a vega-neutral amount of 1Yx10Y
10/13/23 11/03/23 3.5
swaption volatility
Buy 1Yx10Y swaption straddles paired with a receive-fixed swap overlay to hedge
10/27/23 11/03/23 (1.1)
against a decrease in implieds due to lower yields
Initiate short gamma exposure in the 6Mx30Y sector 11/03/23 12/08/23 7.9
Sell 6Mx30Y swaption straddles versus buying a vega-neutral amount of 1Yx30Y
11/03/23 12/08/23 0.4
swaption straddles
Initiate long gamma exposure in the 1Yx10Y sector 12/08/23 02/23/24 (2.1)
Initiate long exposure to 2Yx2Y volatility with a suitably weighted short in July Fed
01/05/24 02/23/24 2.6
funds futures to hedge the downside risk from a fall in Fed-easing expectations
Overweight 2Yx2Y swaption straddles versus a vega-neutral amount of 5Yx5Y
01/19/24 02/23/24 3.2
swaption straddles
Overweight 6Mx10Y swaption straddles versus selling 110% of the vega risk in
01/26/24 02/23/24 1.3
1Yx10Y swaption straddles
Buy 6Mx10Y straddles 03/01/24 03/08/24 (6.6)
Initiate longs in 6Mx10Y swaption implied volatility, delta hedged daily 03/15/24 03/22/24 (5.1)
Overweight 6Mx2Y swaption straddles versus a theta-neutral amount of 6Mx5Y
01/19/24 04/12/24 (8.8)
swaption straddles
Sell 2Yx30Y swaption volatility versus buying 50% of the vega risk in 2Yx2Y swaption
02/23/24 04/12/24 1.5
volatility , and pay fixed in 2Yx 10Y swaps to neutralize the bullish bias in this trade
Buy 6Mx10Y volatility versus 6M forward 6Mx10Y volatility, synthetically constructed

04/05/24 04/12/24 3.2
via suitably weighted 1Yx10Y and 6Mx10Y swaptions
Buy 2Yx5Y swaption straddles on a delta hedged basis 04/12/24 04/19/24 1.0
Sell 6Mx10Y straddles on a delta hedged basis 04/26/24 05/03/24 3.1
Sell 6Mx15Y straddles on a delta hedged basis 05/03/24 05/10/24 (1.6)
Sell 1Yx2Y volatility versus buying a theta neutral amount of 1Yx5Y volatility 05/17/24 06/06/24 0.6
Initiate Fronts/Green curve flatteners, paired with delta hedged long volatility positions
05/31/24 06/06/24 5.6
in the 1Yx10Y swaption sector
Initiate exposure to long curve volatility by buying 6Mx2Y and 6Mx10Y straddles
12/08/23 06/07/24 1.1
(41:60 vega weighted) versus selling 6Mx5Y straddles
Buy 2Yx5Y swaption straddles on a delta hedged basis, versus 6Mx1Y / 18Mx1Y
06/07/24 06/14/24 3.6
flatteners
Others Entry Exit P/L
TU calendar spread narrowers 8/18/2023 8/25/2023 0.5
WN calendar spread wideners 8/18/2023 8/25/2023 (3.5)
Position for a widening in WN calendar spreads 11/9/2023 11/22/2023 1.8
Buy the USZ3/USH4 weighted calendar spread hedged with USZ3/WNZ3 Treasury
11/9/2023 11/22/2023 0.2
futures curve flatteners
Position for a narrowing in FV calendar spreads 11/9/2023 11/22/2023 0.3
WN calendar spreads narrowers 2/13/2024 2/23/2024 (0.7)
UXY calendar spreads narrowers 2/13/2024 2/23/2024 (0.8)
TU calendar spreads narrowers 2/13/2024 2/23/2024 (0.3)
Sell the 4.75% Nov 2053 WNM4 basis, versus buying payer swaptions 3/8/2024 4/12/2024 1.0
Initiate calendar spread wideners in US Futures 5/17/2024 5/28/2024 (3.0)
Initiate calendar spread narrowers in UXY Futures 5/17/2024 5/28/2024 0.4
Initiate calendar spread narrowers in FV futures 5/17/2024 5/28/2024 1.0
Total number of trades 137
Number of winners 97
Hit rate 71%
43
JPMORGAN
Recent Weeklies
07-Jun-24 The BOC and ECB begin a game of BOCCE-Ball, likely without the Fed for now
31-May-24 The planets, if not the stars, are aligning
17-May-24 Another brick in the vol
10-May-24 The election enters the hearts and minds of options traders
3-May-24 R2-P2
26-Apr-24 Perfectly priced to patience
19-Apr-24 Should I stay or should I go?
12-Apr-24 A hairpin bend on the road to easing
5-Apr-24 Shaken, not stirred
22-Mar-24 The Fed, walking a tightrope, finds better balance
15-Mar-24 (P)PI day
08-Mar-24 The sun is the same, in a relative way, but vol is lower
01-Mar-24 Governor Vol-ler moves the market
23-Fed-24 What’s the rush
09-Feb-24 Soft landings, TouchdoWNs, and Safety in the End Zone
02-Feb-24 When it rains, it pours
26-Jan-24 All eyes on Washington
19-Jan-24 Polar vortex duration extension
05-Jan-24 Happy new taper
15-Dec-23 On the second day of FOMC, my true dove spoke to me
8-Dec-23 What I tell you three times is true
9-Nov-23 The tail that wagged the market
3-Nov-23 Descent towards a soft landing
27-Oct-23 Refunding, FOMC and Payrolls - a witch’s brew awaits
20-Oct-23 Early Onset Volloween
13-Oct-23 Darkening skies, even before the solar eclipse
29-Sep-23 Bennu there, done that
22-Sep-23 Central banks line up in a holding pattern
15-Sep-23 Hold my Fed
08-Sep-23 A Goldilocks economy leaves us thrice bearish
25-Aug-23 Navigate by the stars when R-star is blurry
18-Aug-23 The Relative Rise of the Curve Factor
04-Aug-23 Everything everywhere all at once
28-Jul-23 Bar-Fed-Heimer
14-Jul-23 Banks to face a higher Barr
7-Jul-23 Cruel Summer
44
JPMORGAN
Annual Outlooks
21-Nov-23 Interest Rate Derivatives 2024 Outlook: Goodbye Hard Times, Hello Great Expectations?
23-Jun-23 Interest Rate Derivatives: 2023 Mid-Year Outlook
Recent Special Topic Pieces
15-May-24 US bond futures rollover outlook: June 2024 / September 2024
29-Apr-24 Term Funding Premium and the Term Structure of SOFR Swap Spreads
13-Feb-24 US bond futures rollover outlook: March 2024 / June 2024
9-Nov-23 Death cab for QT
8-Nov-23 US bond futures rollover outlook: December 2023 / March 2024
10-Aug-23 US bond futures rollover outlook: September 2023 / December 2023
1-Jun-23 Open the floodgates
45
Teresa Ho AC (1-212) 834-5087 Holly Cunningham (1-212) 834-5683 North America Fixed Income
teresa.c.ho@jpmorgan.com holly.cunningham@jpmorgan.com Strategy
JPMORGAN
Pankaj Vohra (1-212) 834 5292 14 June 2024
pankaj.x.vohra@jpmchase.com
Short-Term Fixed Income

• With fewer rate cuts expected for this year, MMF balances should continue to remain
elevated
• Balances at the ON RRP increased throughout the week , though fell to $387bn on Fri-
day, 6/14. We suspect the decline was related to the June corporate tax day. On average,
over the past eight years excluding 2020 and 2021, MMF balances tend to decrease by
around $45bn around this time of year. Usage of the facility will likely move higher
leading up to quarter-end, particularly as monthly GSE cash enters the front end next
week
• Treasury coupon settlement at month-end seemed to have taken the markets a little bit
longer to digest the supply, thus contributing to the somewhat sticker elevated SOFR
level at the start of the month. Indeed, primary dealers’ inventories of Treasuries have
grown meaningfully over the past couple of years, and recently surpassed their highest
levels in terms of total positions
• SOFR should trend higher again surrounding June-end. It’s also likely that ON RRP
balances move up on the spot date, particularly given negative T-bill supply combined
with typical month-end/quarter-end dealer balance sheet constraints
• So far, concerns over the outcome of the French elections haven’t necessarily impacted
French banks. We suspect spreads will remain near current levels heading into quarter-
end, but technicals in the CP/CD market have the potential to drive spreads slightly wid-
er, on the margin
• The nearly 40% of institutional prime MMF portfolios that will convert or liquidate only
held ~$7bn in credit as of May-end. As such, these conversions and liquidations should
have negligible impact on money market credit demand
• The remaining institutional prime fund space holds $200bn in credit, mostly in bank
CP/CDs and TD. Their portfolios could shift more in favor of rates in order to build up
liquidity in response to reforms and investor preferences, hence leaving a somewhat
significant gap in bank demand to fill…
• …That said, given the continued growth in retail prime MMFs (~$760bn AUM at
month-end), these funds could step in as larger buyers of money market credit, along
with LGIPs, regional asset managers, and corporates. In fact, retail prime MMFs
increased their credit exposure by $30bn in May to $440bn
• Near-term catalysts: May retail sales (6/18), 1Q final real GDP (6/27), May personal
income (6/28), May JOLTS (7/2), June FOMC minutes (7/3), June employment (7/5)
Market commentary
Front-end yields witnessed large price action this week following softer inflation data and
a slightly less dovish Fed. Indeed, 2-year Treasury yields reached their lowest level since
early-April, declining by 18bp to 4.68% week-over-week. Notably, May core CPI rose
0.16%, below expectations, and was the softest monthly print since August 2021. This
benign monthly level took the year-ago reading to 3.4% in May from 3.6% in April (see May
CPI to put a spring in Powell’s step, M. Feroli, 6/12/24). Similarly, PPI ex food and energy
was flat during the month, much softer than expectations, and the year-ago level moved to
2.3%, a step down from the revised 2.5% in April (see US: PPI for May much softer than
expected, M. Tasci, 6/13/24). Elsewhere, the May import prices declined more than expect-
ed; the headline index fell 0.4% on the month with the year-ago price unchanged at 1.1%.
46
JPMORGAN
Excluding fuels, import prices surprisingly slipped 0.3% last month, and higher by 0.5%
versus April downward revisions of 0.8% oya. Based on the full set of May inflation data
this week (CPI, PPI, and import prices), our economists are now tracking 0.14% for core
PCE inflation in May, with the year-ago pace at 2.6% (see US: May import prices surprised
lower, M. Hanson 6/14/24).
Meanwhile, the FOMC left policy rates unchanged, as widely expected, though signaled a
slightly more hawkish bias with respect to the median dot plot for this year. The committee
now looks for one rate cut in 2024 versus three cuts from the March SEP. In the out years,
the median dot now reflects four cuts next year (previously three), and four in ’26 (also
previously three). In aggregate, the FOMC still has nine cuts penciled in over the next two-
and-a-half years, the same number of cuts that was in the March SEP, though only with a
later start and faster catch-up following year end (see FOMC guesses at fewer cuts in ’24,
M. Feroli, 6/13/24).
By week’s end, OIS forwards are pricing in 51bp of cuts by year-end, versus 37bp from last
Friday (Figure 32). In terms of our expectations, our house call is still 25bp of easing in 2024,
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with the first reduction in November, but risks are tilted slightly towards September rather
than December against softer May inflation data. In either case, fewer rate cuts this year is
supportive of MMF balances remaining elevated, which should keep ON RRP from materi-
ally draining in the near term.
Figure 32: By week’s end, OIS forwards are pricing in 51bp of cuts by year-end, versus 37bp from last
Friday
OIS-implied change in fed funds effective rate by FOMC meeting, as of 6/14/24, 6/7/24, and 1/12/24 (bp)
0
-4 -2
-50 -20 -14 -21
-31 -37
-51 -47
-66 -60
-100 -82 -71
-82
-97
-109 -110
-150 -133
Jun-14 -153
-200 -169
Jun-7 -185
-198
Jan-12 -209
218 -250 -218
Jun-25 Jul-24 Sep-24 Nov-24 Dec-24 Jan-25 Mar-25 Apr-25 Jun-25
Source: J. P. Morgan
On the topic of RRP, balances at the facility increased throughout the week , though fell to
$387bn on Friday, 6/14. We suspect the decline on Friday was related to the June corporate
tax day. On average, over the past eight years excluding 2020 and 2021, MMF balances tend
to decrease by around $45bn around this time of year (Figure 33). Although, somewhat f
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interestingly, up until 6/13 (the day before the June corporate tax date), AUMs moved mean-
ingfully higher, which is atypical during this period. Usage of the RRP facility will likely
move higher leading up to quarter-end, particularly as monthly GSE cash enters the front
end next week.
It is perhaps worth mentioning that SOFR returned back to 5.31% as of 6/12, following
several days of the benchmark remaining slightly higher post month-end. Treasury coupon
settlement at month-end seemed to have taken the markets a little bit longer to digest the
supply, thus contributing to the somewhat stickier elevated SOFR level. Indeed, primary
dealers’ inventories of Treasuries have grown meaningfully over the past couple of years,
47
JPMORGAN
and recently surpassed their highest levels in terms of total positions (Figure 34). pc,
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Figure 33: On average, over the past eight years excluding 2020 and 2021, Figure 34: Primary dealers’ inventories of Treasuries have grown
MMF balances tend to decrease by ~$45bn around this time of year meaningfully over the past couple of years, and recently surpassed their
Cumulative change in total taxable MMF AUM around June tax date, in 2024 versus past highest levels in terms of total positions
8 years (ex. 2020-2021) ($bn) U.S. Treasuries held with primary dealers ($bn)
350
80 2024
300
60 Historical Avg
250
40
200
20
150
0
100
-20
50
-40
0
-10 -5 0 5 10 15 20
Business days around June tax date Jun 14 Jun 17 Jun 20 Jun 23
Source: Crane Data, J.P. Morgan Source: Federal Reserve Bank of New York, J.P. Morgan
Looking ahead, SOFR should trend higher again surrounding June-end. On average, SOFR
levels tend to rise by 2-3bp leading up to and including month-end/quarter-end. It’s also
likely that ON RRP balances move up on the spot date, particularly given negative T-bill
supply combined with typical month-end/quarter-end dealer balance sheet constraints. In
the short-term credit markets, FRN spreads are mostly unchanged month-to-date. So far,
concerns over the outcome of the French elections haven’t necessarily impacted French
banks. We suspect spreads will remain near current levels heading into quarter-end, but
technicals in the CP/CD market have the potential to drive spreads slightly wider, on the
margin.
May MMF holdings update: the evolution of prime portfolios and

credit demand
Over May and June so far, MMFs have seen continued inflows averaging nearly $3bn per
day, and the total AUM of the taxable MMF universe has risen to about $6.40tn as of Thurs-
day (Figure 35). Of that amount, approximately $1.40tn currently sits in prime MMF portfo-
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lios, and a pertinent question right now is what their paths forward might look like as the
October reforms deadline approaches, particularly as we consider the future of money mar-
ket credit demand when the MMF buyer-base shrinks in size on the institutional side.
As of this week, nearly 40% of the current institutional prime MMF universe has announced
plans to either liquidate, convert to government funds, or convert to retail funds. The impact
these conversions/liquidations will have on credit demand should be essentially negligi-
ble—as of May month-end, they hold only ~$7bn in credit, or about 1% of the total credit
holdings of all prime MMFs (Figure 36). Meanwhile, the remaining set of institutional
-
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prime funds maintain a more significant credit allotment of $200bn, mostly in bank CP/CDs
and TD, and although many of these funds could likely resist the wave to convert or liqui-
date, it’s also likely that their portfolios transition to be more rates-concentrated (i.e., more
liquid) in response to reforms coming into effect and investor preferences. Clearly, with
~$180bn of money market bank demand coming from institutional prime funds as of month-
end, looking ahead, there could be a somewhat meaningful gap in bank demand to fill—
though notably, the current distribution of money market credit investors is significantly
more broad-based than during prior rounds of MMF reform (see MMF reform spotlight: Not
48
JPMORGAN
the same as 2016, T. Ho, 5/3/24).
Importantly, the retail prime MMF space has only continued to grow larger, holding a total
of ~$760bn in assets as of month-end. As retail prime inflows likely continue on throughout
this year, these funds should remain a sizable investor base that could step in as larger buyers
of money market credit in the event of diminished demand from institutional funds. For that
matter, in May alone, retail prime MMFs picked up $30bn in credit, with the increase pre-
dominantly in bank TD, increasing their total credit share to about $440bn. Other investors
whose share of money market credit supply could likely tick up include LGIPs, regional
asset managers, corporates, and potentially short-term bond funds, though there’s expected
to be a degree of spread-dependence there.
Meanwhile, on the government MMF side, funds saw the greatest month-over-month
increase in non-Fed Treasury repo (+$84bn), keeping consistent with recent months’ trends,
while also picking up T-bills (+$26bn), Agencies (+$24bn), and Treasury FRNs (+$22bn)
(Figure 37). They also reduced uptake at the ON RRP by $65bn to about $330bn, with the
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total ON RRP balance remaining within a range of $400-500bn throughout May and ending
the month at $440bn (Figure 38). As we anticipate government fund inflows to continue
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over the course of the year—an expectation bolstered by the one-cut forecast for 2024, as
mentioned earlier—this again supports that ON RRP is unlikely to sustain a steep drop in
the near term.
Figure 35: The total AUM of the taxable MMF universe has risen to about $6.40tn
Cumulative YTD change in taxable MMF AUMs ($bn)
350 2024
300 Avg of 2012-2022 (ex. 2020)
250
200
150
100
50
0
-50
-100
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Crane Data, iMoneyNet, J.P. Morgan
49
JPMORGAN
Figure 36: The 40% of institutional prime MMFs that are converting or liquidating only hold ~$7bn in
credit, while retail prime MMFs picked up $30bn in credit month-over-month
Asset allocation breakdown of retail prime MMFs, institutional prime MMFs that are converting or liquidating, and remaining
institutional prime MMFs, as of 5/31/24 ($bn)
Prime Inst Prime Inst
Sector Prime Retail m/m chg Conv/Liq m/m chg Remaining m/m chg
Banks (US) 36 (2) 0 (2) 11 (1)
Banks (Eurozone) 92 6 1 (9) 46 (1)
Banks (Other Yankee) 250 24 3 (9) 107 9
Repo 232 21 36 14 71 (4)
ABCP/CCP (Banks) 42 (1) 1 (2) 12 (0)
ABCP (Non-banks) 6 0 1 0 10 2
ABS 0 (0) - (0) 0 (0)
Corporates (Financial) 4 1 0 (0) 3 0
Corporates (Non-financial) 9 1 0 (4) 12 1
US Treasuries 71 (7) 119 15 41 (3)
US Agencies 0 0 43 (3) 5 1
US S&L Govt/Munis 10 0 0 (0) 2 (0)
Foreign SSA 1 (0) 0 (2) 2 (1)
Central Banks (Fed RRP) 1 (30) 34 8 54 (6)
Other 1 (1) - - 12 (3)
Credit Total 440 30 7 (26) 200 11
Total 755 13 239 6 387 (5)
Source: Crane Data, J.P. Morgan
Figure 37: Government MMFs saw the greatest month-over-month Figure 38: ON RRP balances registered $440bn at month-end, with about
increase in non-Fed Treasury repo, keeping consistent with recent $330bn coming from government funds
months’ trends MMF and non-MMF RRP balances (LHS, $bn) vs. Govt MMF RRP % of total (RHS)
Asset allocation breakdown of government MMFs ($bn)
chg % chg Non-MMF RRP (LHS) Prime MMF RRP (LHS) 2750
% of m/m since m/m % since 2750 2500
85%
Govt MMF RRP (LHS) % Govt MMF (RHS)
Sector May-24 total chg Nov-23 chg Nov-23 2500 2250
Treasuries 2,233 45% 45 154 2% 7% 2250 2000
80%
Bills 1,829 37% 26 89 1% 5% 2000 1750
Treasury coupons 102 2% (2) 66 -2% 182% 1750 1500
75%
1250
FRNs 301 6% 22 (0) 8% 0% 1500
Agencies 686 14% 24 35 4% 5% 1250 1000
1000 70%
750
Discos 145 3% 13 41 10% 40%
Agency Coupons 64 1% (5) (100) -7% -61% 750 500
Agency FRNs 477 10% 16 94 3% 25% 500 65%
250
Repo 2,053 41% 23 (84) 1% -4% 250 0
Treasury repo 1,124 23% 84 255 8% 29% 0 60% Jan
Agency repo 599 12% 1 (28) 0% -4% Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
Other Repo 4 0% 4 4 0% -
RRP 327 7% (65) (314) -17% -49%
Other 16 0% (1) 6 -5% 54%
Total 4,988 100% 92 112 2% 2%
Source: Crane Data, J.P. Morgan Source: Crane Data, J.P. Morgan
Excerpted from Short-Term Market Outlook and Strategy, Teresa Ho, June 14, 2024
50
Nick Maciunas AC (1-212) 834-5671 Sanjana Prasad (1-212) 834-5720 North America Fixed Income
nicholas.m.maciunas@jpmorgan.com sanjana.t.prasad@jpmchase.com Strategy
JPMORGAN
Alex Kraus (1-212) 834-5954 David Kaminsky (1-212) 834-5116 14 June 2024
alexander.d.kraus@jpmorgan.com david.kaminsky@jpmchase.com
Agency MBS
$500ks of summer?
• Please tune in to our 2024 Securitized Products Bootcamp on Monday—we’ll have
sessions on Bank Demand, our OASis calculator (GUI and excel add-in), and the
MBS offerings on DataQuery (including a full data dictionary)
• Mortgages tightened following Wednesday’s CPI print, as rates reversed their
sharp selloff following last week’s payrolls; prior to Thursday’s widening, higher
coupons looked snug vs. the recent range and historicals
• This week’s VA refi reading (corresponding to last week’s applications) touched
the highest level since March 2022. We think this was driven by the local low in
rates, the cluster of high WAC borrowers entering the refi window, and the inclu-
sion of the 2nd business day spike
• Average loan sizes on conventional major pools have recently moved close to $500k
• Beyond HPA, three factors have made pools larger than ever in recent months: a
seasonal uptick in purchase loan prices, jumbo share returning to 9%, and more
300k max pooling
• A $500k loan size versus our current TBA definitions would tighten 5s-6s by 2bp
and 6.5s by 4bp in our beta model
• Historical Existing Home Sales trends are used to predict m/m changes in turnover,
but need to be adjusted for persistent daycount differences between months;
roughly half of the March bump in EHS likely comes from daycount alone
• By highlighting this, we can also answer a related question—are purchase closings
randomly distributed (and thus tightly modulated by daycount), or do people
choose a specific month to move in? It seems like only 2/3rd of the magnitude of
m/m daycount changes filter into EHS
• Increases in property insurance costs in Texas and Florida have outstripped those
in the rest of the country. At the same time, turnover in those states has drifted
higher relative to others. However, the intrastate correlations between turnover
and T&I changes are weak and inconsistent
• The latest Ginnie delinquency data showed no signs that servicers have started
using the FHA payment supplement, judging by cure rates on seriously delinquent
lower coupons; though FHA made the program available last month, it may take
servicers until later in the year to fully implement the modification solution
Views
• Mortgages are on the tighter end of the range, and will likely remain directional
with rates
Mortgages tightened following Wednesday’s CPI print, as rates reversed their sharp selloff
following last week’s payrolls. They edged back down to their mid-May local tights (see
Figure 40), and as of Wednesday’s close sat at the tighter end of their year-to-date range—
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though higher coupons were weakening Thursday morning. Delivered vol remains elevated
(Figure 41), as each key data point (CPI, NFP, etc.) has the potential to move rates by 15bp.
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Mortgages continue to follow expectations of Fed policy. Our economists are now only call-
ing for one cut this year, occurring in November, though Wednesday’s benign inflation read-
ings did raise the possibility of an earlier cut, data willing.
51
JPMORGAN
Figure 39: Spreads sit towards the tighter end of their recent ranges
Current, 1m, and 6m Treasury OAS ranges across the TBA stack. The black dots represent the current OAS, the blue boxes
represent the 1m range, and the black lines represent the 6m range (as of 6/13/2024)
60
50
40
30
20
10
0
-10
-20
2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5
FN 30 FN 15 G2 30
Source: J.P. Morgan
Figure 40: Spreads edged down to the tighter end of the range following Figure 41: … implied and delivered vol are off the highs, but remain fairly
Wednesday’s inflation prints… elevated
Treasury OAS on FN 30yr 2s and 6s 1m std devation of changes in 10yr UST yield, 1Mx10Y and 1Yx10Y implied swaption vol
(ABP)
FN 2s Delivered 10yr vol
180
1Mx10Y implied abp
35 FN 6s
160 1Yx10Y implied abp
140
30 120
100
25 80
60
20 40
12 Mar 26 Mar 09 Apr 23 Apr 07 May 21 May 04 Jun Jun 21 Dec 21 Jun 22 Dec 22 Jun 23 Dec 23 Jun 24
The question we have is whether that directionality should persist if mortgages push into
ever tighter spread levels. With money managers a key source of demand, and banks perhaps
more spread sensitive than they have been in the past with the advent of portfolio layer hedg-
ing (which allows them to untangle mortgage spread from duration), we think that the mar-
ket shouldn’t be satisfied with ever tighter spreads, even if rates do edge lower. That being
said, with much of the focus in higher coupons centered around nominal or ZV spreads, and
a commonly held view that a Fed cutting cycle will start a bullish resteepening of the curve,
we can see demand for higher coupons persisting even when OASs look a bit snug vs. histor-
icals. That’s particularly true with IG spreads remaining at exceptionally tight historical
levels. As a result, it’s hard to recommend a strong short, but the intrinsic spread (beyond
the option cost) that you’re getting paid to hold mortgages is looking a bit snug.
On the prepayment front, this week’s VA refi reading (applicable to 6/3-6/7 applications)
was significant—it touched the highest level since March 2022, surpassing even last
December’s spike (Figure 42). We think that there are three main drivers of this print. First,
…
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we hit a local low in rates last week ahead of payrolls (see Figure 43). Second, as we dis- m
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cussed in our May 31 weekly, there’s currently a cluster of high WAC borrowers rolling into
the refi window (think the 6.5s/7s originated in September, pooled in October). Third, the
52
JPMORGAN
survey released on 6/12 (for the week ending 6/7) included the 2nd business day of the
month, which we’ve also previously highlighted as seeming to coincide with spikes in the
index, likely because originators are targeting borrowers who have just made the number
of payments required for streamline eligibility.
Figure 42: The VA index hit the highest level since March 2022… Figure 43: … in a week where we hit a local high in G2 5 prices and a block
MBA VA refi index (daycount adjusted), unitless of newly refinanceable high WAC VA borrowers rolled into streamline
eligibility
MBA VA Refi index (left) and G2 5 price (right)
100 99.0
95 VA Refi Index (left)
80 G2 5 Price (right)
85 98.0
+32%
75 60
65 +143% 97.0
40 +29% -38%
55 +32%
96.0
45 20
35 0 95.0
25 4/1 4/8 4/15 4/22 4/29 5/6 5/13 5/20 5/27 6/3 6/10
15
Mar 22 Jun 22 Sep 22 Dec 22 Mar 23 Jun 23 Sep 23 Dec 23 Mar 24 Jun 24
Source: J.P. Morgan, MBA Source: J.P. Morgan, MBA
In other mortgage news, the VA announced that it is removing a restriction prohibiting bor-
rowers from paying a buyer’s agent fee. The borrower still won’t be able to capitalize this,
and so VA is largely aligning with the GSEs and FHA with respect to these fees. Separately,
the GSEs announced a June 25th forum to prepare users for the publication of historical Van-
tageScore 4.0 credit scores on July 10.
This week, we’ll focus on how loan sizes on major pools have moved close to $500k, thanks
to a few factors including a renewed jumbo loan presence and more pooling of higher loan
balance cuts. We’ll also look at how to untangle pure turnover seasonality from persistent
m/m changes in daycount. We examine the (tenuous) relationship between T&I changes and
turnover. Finally, we haven’t seen any indications that servicers have started to use the pay-
ment supplement to curve low coupon FHA delinquencies.
The loan size “500”

The race is on in major pools to see which can hit $500k in average loan size in a historic
first (Figure 44). In the just issued set of May pools, Freddie’s 5.5 major (FR SD8438) hit
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$495k, while Fannie’s still in progress 6.5 pool for June (FN MA5422) is currently at $494k.
At a time when home price appreciation is positive and loan limits ratcheted higher, its natu-
ral to think that bigger pools are the natural course of events, but we are seeing some addi-
tional trends that have contributed to the major pools seeing loan size inflation.
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JPMORGAN
Figure 44: Loan sizes have crept up in 6 and 6.5 majors over the past few months
For FN MA 30yr pools, the average loan size ($k) by issue month and coupon (x-axis)
Average loan size on FN MA 30yr pools by coupon

Nov 23 Dec 23 Jan 24 Feb 24 Mar 24 Apr 24 May 24 Jun 24
500
480
460
440
420
5.5 6.0 6.5
Source: J.P. Morgan, Fannie Mae
The three main factors aside from HPA are as follows:
· The seasonal increase in the price of homes sold
· Greater jumbo loan presence in majors
· Additional pooling of loan balance, namely $300k max
Starting with the first, Figure 45 shows the average loan size for conventional purchase
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applications from the MBA’s survey since the start of 2019. Even amid the move higher in
HPA and 2020 disruptions, there is clearly a trend towards more expensive homes transact-
ing during the spring buying season. Looking at purchase app loan sizes as a ratio against
the full year help makes the relationship clear outside of the underlying trend higher in prices
(Figure 46). Existing home sales data shows something similar with median prices typically
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peaking in June. We would also point out that this seasonal variation matters much more for
major pool sizes in the purchase-driven market of 2022 and beyond. Based on this year’s
readings, it looks like the seasonal impact has peaked with the June pools and should be a
moderating force on loan size over the rest of the year.
Figure 45: Mortgage apps show a seasonal trend towards larger purchase Figure 46: … a trend that stands out even during periods of rising home
transactions in the spring … prices
Average loan size ($k) for conventional purchase applications by month Ratio of a month’s purchase application loan size against the full year average
500 Purchase App Loan Size 110% Purch app loan size relative to yearly average
105% 2019 2021 2022 2023

450
100%
400
95%
350
90%
300 1 2 3 4 5 6 7 8 9 10 11 12
Jan 19 Jan 20 Jan 21 Jan 22 Jan 23 Jan 24 Month
The next factor is the sudden rise of superconforming loans in the majors (Figure 47). A …
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variety of factors go into the best landing spot for these loans, but prior to 2022, majors
54
JPMORGAN
typically hovered closer to the maximum 10% allowed. The plunge in 2022/2023 is likely
related to bank portfolios looking to add more mortgage exposure in loan form, as we’ve
previously discussed. The trend is new, but jumbos returning to 9% of majors as a whole
could reflect a reversal in that position. The Fed’s H.8 does show less resi loan growth from
bank portfolios through the first five months of the year in 2024 versus 2022/2023 (Figure
48). As it pertains to loan size, there isn’t much room for the jumbo share to go up, so this
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is another factor that might be close to capping out.
Figure 47: The share of jumbos in major pools has rebounded close to the Figure 48: … accompanied by a slower growth in bank resi loan holdings
10% cap … Change in residential loans held by banks through the end of May by year, $bn, with
Share of superconforming loans in FN MA pools by month, % percentage showing growth relative to year end holdings
10%
Bank resi loan growth through May
3.3%
80
8%
60 2.1%
Jumbo % of majors 40
6%
20 0.5%
4% 0
2017 2018 2019 2020 2021 2022 2023 2024 2022 2023 2024
Source: J.P. Morgan, Fannie Mae Source: J.P. Morgan, Federal Reserve
The final factor, loan balance pooling, is something we addressed in depth on 2/23. What
seem like higher cuts by historical measures still make sense to pool separately for their
prepayment protection. Figure 49 shows how $275k max pooling revved up in early 2023,
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and the gradual increase in $300k max creation over the past few months. At this stage,
$300k max pooling is mostly done by individual servicers. If $275k-$300k loans start to get
carved out for cash window pools, that would boost the share of pooling up substantially and
have an impact on TBA loan sizes.
Figure 49: 300k max pooling has increased in recent months

For loans meeting a given loan size criteria (225k max = loan size above 200k, less than or equal to 225k), the share that
are separately pooled into “loan balance” spec
Pooling of loans that match loan size criteria into loan bal <=200k 225k max
250k max 275k max
300k max
100%
50%
0%
Jan 20 Jan 21 Jan 22 Jan 23 Jan 24
Source: J.P. Morgan, Fannie Mae
In terms of impact, we can use our beta prepayment model and see how our current TBA
definitions would fare with a loan size of $500k. In reality, there will be subtleties in how
larger loans are distributed among coupons due to prevailing rates, making these changes
most applicable to the current production coupons. Figure 50 shows that 5s-6s would see
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2bp tighter spreads while 6.5s would move 4bp tighter. Loan sizes might be hitting a peak
now in June relative to the next few months (due to purchase sizes dropping/full jumbo
share), but they could continue to creep higher in the medium term depending on loan bal
55
JPMORGAN
creation trends and positive HPA.
Figure 50: Theoretical impact of $500k loan sizes in our beta model by coupon
OAS results based on current TBA definitions (with different loan size assumptions) and the beta model, as of 6/12
Current OAS based on loan size
Coupon Loan Size Current 500k Change
5.0 460 10 8 -2
5.5 470 17 16 -2
6.0 475 22 20 -2
6.5 460 24 20 -4
Source: J.P. Morgan
Shall I compare thee to a summer’s day(count)?

Perhaps because speeds are generally so uninteresting these days, investors have been more
carefully watching the monthly fluctuations in seasonal factors and daycount. Seasonal fac-
tors aim to isolate the change in likelihood that borrowers move in any given month, and are
driven in large part by primary/secondary school calendars; they can be estimated using
Existing Home Sales (EHS). Daycount can be a bit of an art (i.e., how much do Good Friday
and Columbus Day impact closes?), but on the whole is relatively straightforward to esti-
mate. The cross-term of the two factors has always been a bit of a question—do people
choose a specific month to move in? Or are purchase closings more randomly distributed,
and thus tightly modulated by daycount? For example, this year, June has three fewer collec-
tion days than May, but June EHS are normally up by around 8% m/m; what should the
combined effect be?
To answer this, we need to untangle the two factors, which we attempt to do by constructing
a 20+year time series of m/m changes in EHS and changes in closing days. We then can run
a simple regression of EHS m/m changes vs. daycount m/m changes, as shown in Figure 51 S
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. The intercept of this regression (+7%) represents the pure EHS seasonal factor (i.e., how
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much EHS should move with no change in daycount). The slope of the line (72%) tells us
how much the m/m change in EHS moves with changes in daycount. Daycount does appear
to impact EHS, but not with a perfect 1-to-1 relationship; some fraction of homes being sold
probably do need to close in a particular month, while the remainder are more agnostic to
closing month. Given that we lose three collection days in June (dropping from 22 to 19),
we’d expect that EHS would drop by about 3% in aggregate.
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JPMORGAN
Figure 51: EHS normally rises 7% in June, but daycount could pull it down Figure 52: March sees the biggest seasonal upswing in turnover, but half
10% to -3% of the EHS change is from persistently higher daycount
EHS m/m changes vs daycount m/m changes June vs. May, 2000-2023 (excluding 2020) EHS m/m changes vs daycount m/m changes March vs. February, 2000-2023 (excluding
2020)
20% Intercept of +7% ~ Slope of 72% shows how much 50%
pure EHS daycount impacts m/m turnover
45% y = 0.9758x + 0.1741
15% seasonal factor
40% R² = 0.5392
EHS m/m change
EHS m/m change

10% 35%
5% 30%
25%
0%
20%
-5% 15%
-10% -5% 0% 5% 10% 0% 5% 10% 15% 20% 25%
Daycount m/m change Daycount m/m change
Source: J.P. Morgan, NAR Source: J.P. Morgan, NAR
Interestingly, some months consistently average higher daycount vs. their predecessor. This
is particularly acute for the March/February pair, as shown in Figure 52. On average, EHS d
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rises ~33% between the two months, but daycount is also typically 16% higher m/m. That
is to say, if there were the same number of collection days in March and February in a given
year, we’d expect EHS to only rise by around 17% (i.e., the 0.1741 intercept of the above
regression).
It turns out that March is by far the most interesting month. As Figure 53 shows, the average b
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EHS change and the regression intercepts for each month are usually quite close; March has
the largest absolute difference between the two (33% - 17%), followed by September,
November, December, and August (with their differences ranging from 7% to 5%, respec-
tively). The rest are within 5% of each other. This is another way of saying that the months
with >5% EHS differences, on average, have a collection day difference of more than one
business day. In addition to these levels, we show the regression slope in each month (which
averages 68% in our sample) as well as the r2 (which averages a reasonable 53%). As we’ve
written previously, there’s quite a bit of noise in EHS m/m changes even accounting for
daycount changes, so take all of these relationships with a grain of salt. Still, we think that
this approach provides a reasonable measuring stick for predicting m/m changes in turnover
speeds in this low speed world.
57
JPMORGAN
Figure 53: For most months, EHS changes are fairly close to our regression implied seasonal factors
because daycount changes are not persistent
Average EHS m/m (%), regression intercept (%), regression slope (%), and regression r-squared (%) observed from 2001
to 2023
40% 100%
30%
80%
20%
10% 60%
0%
-10% 40%
-20% Average EHS m/m (left)

Regression intercept (left) 20%
-30% Regression slope (right)
-40% Regression RSQ (right) 0%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: J.P. Morgan, NAR
Do people move when their T&I payments go up sharply? The

data is not definitive.
Reports abound concerning the surge in costs homeowners face from increasing taxes &
insurance. Our resi credit colleagues have examined whether these increases in T&I result
in higher default rates (they marginally do, see RMBS Credit Commentary: Flex mod contin-
ued). Another interesting question is whether increases in T&I have an impact on borrower
x
turnover. In a vacuum, increasing the T&I payments on a particular home would make that
borrower’s cost of housing relatively more expensive, potentially prompting the borrower
to consider moving to a cheaper alternative. However, T&I changes most assuredly do not
happen in a vacuum. T&I increases on a particular home are likely to be very correlated with
changes in T&I for nearby residences. As a result, a borrower facing a T&I shock is probably
seeing a similar all-in cost bump on alternative properties; without making a significant
geographic move it may be hard to find cheaper housing. When we examine the empirical
relationship between T&I changes and turnover, it does seem like there is some weak corre-
lation, though it’s not consistent by state—making it hard to be sure that this is a dependable,
causal relationship.
The potential for a correlation between rising insurance costs and faster turnover is interest-
ing to the MBS investor because it’s a thesis that one can actually act on. As Figure 54 shows, …
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property insurance premiums have surged in Florida and Texas in recent years. These hap-
pen to be two of the tradeable geographic pool types (NY is too, but insurance cost increases
have been muted there vs. the rest of the country).
58
JPMORGAN
Figure 54: Property insurance premiums have risen fastest in FL and TX Figure 55: … the two geo pool stories that also happen to have higher
… turnover
YoY increase in T&I payment (%) for FL, TX, CA, Ny, and at the national level Ratios of 12m turnover CPRs vs. national average
25% 2.0 TX FL NY CA
FL
20% TX
YoY increase in T&I (%)
CA 1.5
15%
NY
10% National 1.0
5%
0% 0.5
-5%
0.0
-10% '16 '17 '18 '19 '20 '21 '22 '23 '24
'12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24
Source: J.P. Morgan, Black Knight Source: J.P. Morgan, Black Knight
Interestingly, these insurance increases have coincided with TX and FL expanding their
relative top level baseline turnover advantage over the rest of the country. In Figure 55, we ogplsrianvu
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…
show pure turnover by state, indexed to the national level of turnover. Florida and Texas
have persistently paid faster than the nation as a whole over most of the last decade, and have
slightly expanded their advantage recently. Meanwhile, NY has slowed relative to the aver-
age.
But correlation does not prove causation, and so while insurance costs and turnover have
recently shown some linkage, it’s necessary to drill in and look at more carefully at the indi-
vidual state level. In Figure 56, we show turnover speed ratios vs. the national average, split
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by state and the cumulative change in T&I payments since loan origination. We’ve bucketed
the amount of T&I payment increase into four groupings, and in this sample (2-4% WACs
from 2021), the >30% T&I increase bucket does consistently stand out as fastest vs. the
national average.
Figure 56: In some cuts, the T&I vs. turnover relationship looks decent
Turnover speed ratio vs. national average (i.e. 120% means this bucket is 20% faster than average) and state specific balance
distribution across T&I buckets
Cumulative change in T&I payments
≤0% 0-15% 16-30% >30% All
TX 113% 119% 126% 144% 128%
Turnover
FL 134% 126% 128% 153% 140%
speed ratio
CA 66% 69% 75% 83% 71%
vs. national
NY 34% 36% 40% 47% 37%
average
Others 102% 99% 101% 112% 103%
TX 23% 25% 17% 34% 100%
FL 20% 18% 16% 47% 100%
Distribution of
CA 28% 49% 13% 11% 100%
balances
NY 27% 47% 15% 11% 100%
Others 24% 36% 20% 20% 100%
Source: J.P. Morgan, Black Knight
To see if these relationships hold up better over a larger range of different cuts, in Figure 57 her’s
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vintage (2020 and 2021) and each state (TX, FL, CA, NY, others), we compute relative speed
ratios across the T&I buckets shown earlier. This is different from the prior table, where we
59
JPMORGAN
were computing speed ratios vs. the national average. We then plot the speed ratio difference
from cohort average against the size of the cumulative T&I change since origination. It does
appear that there is some weak correlation between the speed rankings and T&I changes.
Figure 57: There’s a weak but noticeable correlation between turnover and T&I changes across vintages
and states
Intrastate speed ratios to average vs. T&I changes since origination, for the following buckets: Vintage [2020,2021], Geo [TX,
FL, CA, NY others], WAC [2-3%, 3-4%, 4-5%]
y = 0.2329x - 0.0478
60% R² = 0.1891
Diff. from cohort avg. turnover
40%
20%
0%
-20%
-40%
-60%
-80%
-20% 0% 20% 40% 60% 80% 100%
Cumulative T&I change from origination
Source: J.P. Morgan, Black Knight
However, the data is pretty noisy, and so it’s worth isolating the results from the two key
states. In Figure 58, we show just the points from Texas. There’s a better correlation here
…
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(though it’s still not particularly strong). However, in Florida (Figure 59), there’s barely any d
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correlation at all.
Figure 58: The correlation is reasonably strong when isolating to just Figure 59: … but there’s barely any relationship in Florida
Texas loans … FL speed ratios to average vs. T&I changes since origination, for the following buckets:
TX speed ratios to average vs. T&I changes since origination, for the following buckets: Vintage [2020,2021], WAC [2-3%, 3-4%, 4-5%]
Vintage [2020,2021], WAC [2-3%, 3-4%, 4-5%]
y = 0.1429x - 0.0092
20% TX R² = 0.2769 60% FL y = 0.0487x - 0.0072
R² = 0.0121
40%
10% 20%
0%
0%
-20%
-10% -40%
-60%
-20% -80%
-20% 0% 20% 40% 60% 80% 100% -20% 0% 20% 40% 60% 80% 100%
Cumulative T&I change from origination Cumulative T&I change from origination
Source: J.P. Morgan, Black Knight Source: J.P. Morgan, Black Knight
It’s not immediately obvious to us what drives the difference between the two states. It’s
possible that broader migration trends are ultimately larger drivers of turnover, and that
there are additional correlations that are harder to tease out between areas of high T&I
increase and migration inflows. There’s more work to be done there. But as of now, we don’t
feel particularly confident recommending Florida pools for turnover benefits on the strength
of T&I changes alone. Empirically, however, it’s hard to deny that there’s been a consistent
empirical turnover advantage for the state; we’ll have to keep looking for ways to better
predict how that advantage might evolve going forward.
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JPMORGAN
Special thanks to Ani Gelashvili and Isabella Lee for the help on this piece.
The introduction of the FHA payment supplement hasn’t impact-

ed Ginnie cures … yet?
On May 1st, servicers were first able to implement FHA’s Payment Supplement option for
eligible borrowers. As a refresher, the Payment Supplement allows borrowers access to 30%
of their outstanding balance via Partial Claim. After using these partial claim funds to pay
arrearages and bring borrowers back to current, the remaining funds can be used to tempo-
rarily supplement P&I payments and target a 25% reduction in a borrower’s monthly pay-
ment. Overall, this program should delay or mitigate the need for buyouts for some borrow-
ers, very modestly lengthening cashflows and tightening OAS in lower coupon Ginnies, all
else equal.
On June 10th, Ginnie released May delinquency data, allowing us to see whether FHA cure
rates have markedly changed after this program began. Cure rates do not seem to have been
affected by the start of this program in aggregate, or across the largest FHA servicers (Figure
60& Figure 61).
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Figure 60: Cure rates do not seem to have been affected by the start of the Figure 61: … or across individual servicers
program in aggregate … FHA 90+D to current roll rates for 2s-3s, by the top 25 FHA servicers for 2s-4.5s as of May
FHA 90+D to current roll rates by coupon, observed from Jan. 2024 to May 2024, % 2024, observed from Jan. 2024 to May 2024, %
Jan-24 Feb-24 Mar-24 Apr-24 May-24
25.0% 2.0 2.5 3.0 All 18.3% 21.5% 22.1% 20.4% 19.5%
Lakeview 16.0% 23.1% 26.9% 25.5% 25.6%
22.5% Freedom 25.8% 30.0% 19.8% 16.3% 13.6%
Pennymac 26.2% 24.6% 25.6% 23.8% 22.7%
20.0% Mr. Cooper 32.1% 28.8% 29.9% 26.7% 28.4%
Rithm 16.2% 19.2% 24.4% 25.7% 25.7%
17.5% Carrington 21.0% 24.9% 19.8% 16.8% 16.2%
Wells 4.4% 5.0% 4.9% 5.5% 5.4%
Rocket 18.7% 16.9% 18.6% 18.5% 12.8%
15.0%
US Bank 18.6% 20.6% 26.1% 23.9% 21.2%
Jan-24 Feb-24 Mar-24 Apr-24 May-24
Planet 8.5% 10.5% 11.1% 9.4% 13.5%
M&T Bank 14.2% 30.6% 35.4% 28.6% 24.4%
LoanDepot 9.9% 13.1% 15.6% 16.6% 14.1%
Money Source 13.7% 16.3% 16.3% 15.0% 16.6%
Guild 19.4% 20.6% 22.9% 20.2% 25.1%
IDHH 12.0% 19.4% 24.0% 30.4% 19.6%
Cross Country 6.0% 23.1% 30.0% 27.4% 28.3%
New American Funding 18.2% 19.2% 17.7% 18.5% 22.0%
Midfirst 7.7% 9.8% 13.9% 15.5% 15.4%
Truist 16.6% 16.2% 19.2% 14.3% 15.6%
CMG 18.0% 21.5% 22.3% 21.3% 19.2%
Citizens 11.3% 17.3% 14.5% 8.6% 12.7%
UWM 32.3% 25.7% 25.5% 17.7% 22.8%
Movement 14.0% 22.7% 17.1% 20.2% 21.1%
PHH 7.3% 7.8% 7.4% 12.1% 8.3%
Source: J.P. Morgan, Ginnie Mae Source: J.P. Morgan, Ginnie Mae
As discussed several weeks ago, this may be because servicers may be undergoing opera-
tional frictions in shifting their systems to this new mod waterfall. We may see staggered
spikes in cure rates later in the year across different servicers. Since this program must be
implemented for eligible borrowers no later than Jan. 1, 2025, we will continue to monitor
cure rates over the rest of the year to gauge the impact of this program on FHA borrowers.
61
JPMORGAN
Week in Review
• MBA Weekly Survey: For the week ending June 7, the purchase application index rose
6.7% w/w and was 11.6% lower than year ago levels, while the refinance index rose
28.4% w/w and was 14.9% higher the 3-month trailing level (daycount-adjusted, not
seasonally-adjusted) (Figure 62 & Figure 63). itjm
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• Freddie Enhanced Primary Survey: For the week prior to June 13, 2024, 30-year con-
ventional conforming fixed-rate mortgages averaged 6.95%, down 4bp from the previ-
ous week (Figure 64). es,%
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• Primary dealer specified pool positions rose to $434.7bn (+$16.7bn w/w) as-of close
trading June 5th. Including TBA positions of -$375.2bn, dealers were long $59.5bn
(+$7bn w/w) pass-throughs. Other agency MBS holdings fell -$1.9bn to $26.3bn.
• Fixed-rate agency gross and net issuances were $88.9bn and $14.6bn, respectively,
in May. June gross supply currently stands at $55.0bn (Figure 65) b
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• Our OAS optimized portfolio favors FNCL 1.5s-2.5s and G2 2s, while reducing
exposure to FNCL 4s-6.5s and G2 2.5s & 4.5s-6s. Our optimized portfolio achieves
an OAS of 37 with an OAD of 5.67 versus the index’s OAS of 35 with OAD of 5.37.
Cohort weights are limited to 40% redistributions in our optimized portfolio, while
duration cannot change by more than 1 year and convexity can be no worse than the
index (Figure 66 & Figure 67).
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Figure 62: MBA Purchase Index, calendar year overlay with daycount Figure 63: MBA Refi Indices, seasonally adjusted
adjustments
2021 1400
350 2022 Total Conventional Ginnie
2023 1200
2024
300 1000
250 800
600
200
400
150
200
100 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jun-23 Aug-23 Oct-23 Dec-23 Feb-24 Apr-24
Figure 64: Primary mortgage rates, % Figure 65: Gross and net fixed-rate MBS monthly issuance, $bn
8.00 Opt. Blue
Freddie 120 Gross Issuance Net Issuance
7.75 MND
100
7.50 MBA
80
7.25
60
7.00
40
6.75
6.50 20
6.25 0
Jun-23 Aug-23 Oct-23 Dec-23 Feb-24 Apr-24 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
Source: J.P. Morgan, Optimal Blue, Freddie Mac, Mortgage News Daily, MBA Source: J.P. Morgan
62
JPMORGAN
Figure 66: Weights of the actual index and an OAS optimized portfolio
Weight distribution by coupon and product as for an OAS optimized portfolio as of 6/13/2024. Weights of each cohort are
allowed to be shifted by at most 40%.
25
Actual Weight Optimized Portfolio
20
15
10
0
1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 1.5 2 2.5 3 3.5 4 4.5 5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7
FN 30 FN 20 FN 15 G2 30
7
Source: J.P. Morgan
Figure 67: Weight redistribution for the OAS optimized portfolio

Difference between optimal and actual weights by coupon and product for an OAS optimized portfolio as of 6/13/2024. Weights
of each cohort are allowed to be shifted by at most 40%.
7
6 Optimal - Actual
5
4
3
2
1
0
-1
-2
1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 1.5 2 2.5 3 3.5 4 4.5 5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7
FN 30 FN 20 FN 15 G2 30
Source: J.P. Morgan
63
John Sim AC (1-212) 834-3124 Isabella Lee (1-212) 834-4148 North America Fixed Income
john.sim@jpmorgan.com isabella.lee@jpmorgan.com Strategy
JPMORGAN
Ani Gelashvili (1-212) 834-2605 14 June 2024
ani.gelashvili@jpmorgan.com
RMBS Credit Commentary

Agency investor execution in PLS
• Mortgage credit spreads were tighter before Wednesday but softer-than-expected
May CPI further drove the risk-on sentiment
• Last week, we noted that Freddie increased the CLTV eligibility for STACR to 105
in Dec 2023
• These are conventional mortgages sponsored by a Housing Finance Agency (HFA).
HFAs which are state agencies provide down-payment assistance to low-to-moder-
ate income households
• The down-payment assistance can be in the form of a grant or a second lien loan.
HFA loans have appeared in the past three STACR transactions. HFA loans have
higher DQ rates
• Three agency investor deals priced this week bringing the YTD issuance total at
$2.6bn. PLS execution looks better than the GSE delivery in investor collateral
• However, supply will likely remain low given origination volumes and still robust
insurance bid for whole loans
Figure 68: RMBS credit issuance to date... Figure 69: ...and spreads
Issuance $mn 2023 FY 2023 YTD 2024 YTD Spreads (bp) Current Δ 1 wk Δ 1 mth Δ YTD
Jumbo 2.0 10,232 4,124 10,350 Fannie CC 30YR 17 (0) (1) (11)
Agency Investor 976 315 2,588 Jumbo PT 38 (4) 6 (20)
CRT 9,313 4,295 5,097 CRT M1 111 (1) (1) (16)
Rental 4,024 755 3,595 CRT M2(M1B) 168 3 (9) (11)
RPL 10,852 6,429 5,372 CRT B1 212 10 (24) (119)
NPL 1,063 758 1,958 CRT B2 387 (6) (19) (212)
Non-QM 31,099 14,309 18,614 Non-QM A1 120 (15) (10) (33)
Seasoned CRT 359 - 467 Non-QM A2 145 (15) (5) (50)
Other 11,921 4,361 10,906 Non-QM A3 165 (10) - (55)
Total 79,838 35,346 58,947 Non-QM M1 210 - 10 (100)
Non-QM B1 320 (40) (10) (165)
SFR A 115 - 5 (35)
SFR B 150 - 5 (40)
SFR C 170 - (10) (50)
SFR D 200 - - (60)
HY Domestic 332 (6) 2 (51)
HG Domestic 89 (2) (0) (15)
Source: J.P. Morgan, Bloomberg Finance L.P. Source: J.P. Morgan

Note: Includes our on-the-run indices. Jumbo is TOAS, non-QM and SFR are spread to treasuries. CRT
is SOFR DM@10CPR. HG/HY are spread to treasuries.
Market Commentary
Mortgage credit spreads moved tighter before Wednesday but softer-than-expected May
CPI further drove the risk-on sentiment. New issue saw the AAA in VERUS 24-5 price at
the YTD tights of 120bp I to 25C/4-year call, but there remains significant difference in
pricing spreads across programs in the new issue. AAA in the ADMT 24-NQM3 priced 30bp
wider than the VERUS AAA at 150 I to same structuring assumptions. ADMT does have
higher DQ rates compared to VERUS in the worst performing ‘22 vintage, but DQs are
lower in their ‘23 loans compared to VERUS. ADMT is a programmatic non-QM issuer but
tends to have less secondary liquidity compared to other shelves. Spreads were tighter in
jumbo 2.0 too with the 6.5 coupon PTs pricing at 0-28 to 1-00bk.
64
JPMORGAN
Last week, we noted that Freddie increased the CLTV eligibility for STACR to 105 in Dec
2023. We received some questions from investors on the topic which we address here. These
are conventional mortgages sponsored by a Housing Finance Agency (HFA). HFAs, which
are state agencies, provide down-payment assistance to low-to-moderate income house-
holds. The down-payment assistance can be in the form of a grant or a second lien loan. HFA
loans have appeared in the past three STACR transactions (Figure 70). The latest high LTV c
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deal has the highest share of HFA loans at 1.1%. Loans have 96 LTV and 101 CLTV with
borrowers getting 5% of assistance for the down-payment and closing costs (Figure 71). b5c-pym
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Surprisingly, two low LTV deals also have some HFA loans. These loans have 75 LTV and
101-102 CLTV, and are originated in states which allow much higher down-payment assis-
tance. Low LTV HFA loans do not have MI. Credit scores of HFA borrowers are 720-730.
Figure 70: HFA loans have appeared in the past three STACR transactions Figure 71: The latest high LTV deal has the highest share of HFA loans at
% of loans with CLTV > 97% and ≤105% 1.1%. Loans have 96 LTV and 101 CLTV with borrowers getting 5% of
assistance for the down-payment and closing costs
Wavg. LTV and CLTV for loans with CLTV > 97% and ≤105%
1.2% 1.13% LTV CLTV

105 102 101 101
1.0%
% CLTV >97% and ≤105%
100 96
0.8% 95
90
0.6% 85
80 75 75
0.4%
75
0.2% 70
0.04% 0.04% 65
0.0% 60
24-DNA1 24-DNA2 24-HQA1 24-DNA1 24-DNA2 24-HQA1
Source: J.P. Morgan, Freddie Mac Source: J.P. Morgan, Freddie Mac
HFA loans are not explicitly classified in agency MBS data, but we identify them using
LTV/CLTV ratios. Figure 72 and Figure 73 show 30+ DQs for 2019 and 2022 vintage HFA
s.
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and all other agency loans. HFA loans have higher DQ rates. We will keep an eye on how
the share of HFA loans increases in STACR. Our model will also capture these loans given
higher CLTVs, but at this point, given limited size, we do not anticipate any material change
to our default and loss projections for STACR.
Figure 72: HFA loans... Figure 73: ...have higher DQ rates across vintages
30+ DQs for 2019 vintage 720-760 FICO HFA and all other agency loans 30+ DQs for 2022 vintage 720-760 FICO HFA and all other agency loans
25% 4.0%
HFA HFA
3.5%
20% All agency 3.0% All agency
15% 2.5%
30+ DQ
30+ DQ
2.0%
10% 1.5%
5% 1.0%
0.5%
0% 0.0%
Mar '21 Dec '21 Sep '22 Jun '23 Mar '24 Feb '22 Sep '22 Apr '23 Nov '23 Jun '24
Source: J.P. Morgan, Freddie Mac Source: J.P. Morgan, Freddie Mac
65
JPMORGAN
PLS investor execution still favorable than the GSE delivery

Three agency investor deals priced this week bringing the YTD total issuance at $2.6bn.
PLS execution once again looks better than the GSE delivery in investor collateral. Below
we use MSRM 2024-INV3 issued this week as an example. We use $1-00 bk of TBA on the
6.5cpn PT, $1-20 bk of that on the senior support and $103-02 on the sub stack. The structure
has a 88bp IO after paying the 6.5% senior coupon and 25bp servicing fee strip, and we use
a 2.5x mult for the IO. Putting this together with 16 ticks for expenses results in $102-21
execution for PLS.
We assume the same collateral is delivered to the GSEs at 7cpn, with a 4.5x buy-down mult.
Including the payup for investor in agency and LLPA results in execution at $100-17, or
$2-04 lower than that of PLS. The GSE execution looks much better for 6.5s. The execution
in 6.5s with a 2.5x buy-up mult is at $101-03, but this is still $1-18 lower than the PLS
execution. However, PLS supply will likely remain low given origination volumes and still
robust insurance bid for agency investor whole loans.
Figure 74: PLS execution is still favorable than the GSE delivery but supply will likely remain low given robust insurance bid for whole loans
Hypothetical PLS and GSE execution for agency investor collateral
Pool WAC 7.63%
UMBS 6.5 102 1/32

UMBS 7 102 31/32
PLS Execution GSE Execution for 7s GSE Execution for 6.5s
SSr CE 15% GWAC 7.63% GWAC 7.63%

Support CE 8.0% G-fee 0.45% G-fee 0.45%
Senior Coupon 6.5% Servicing 0.25% Servicing 0.25%
Servicing fee 0.25% 0.88% 6.93% 6.93%
SSr Price 101 1/32 1 bk of TBA Deliver to 7 102 31/32 Deliver to 6.5 102 1/32
Support Price 100 13/32 20/32 bk of SSNR Buy-down (bp) -7 Buy-up (bp) 43
IO 2 6/32 @ 2.5 mult Buy-down Price - 11/32 @ 4.5 mult Buy-up Price 1 2/32 @ 2.5 mult
Investor Payup 21/32 Investor Payup 24/32
Subs 103 2/32 mh200 I @15c LLPA -2 24/32 LLPA -2 24/32
Expenses Fees 16/32
Total Execution 102 21/32 Total Execution 100 17/32 Total Execution 101 3/32
PLS > GSE execution 2 4/32 PLS > GSE execution 1 18/32
Source: J.P. Morgan
66
Chong Sin AC (1-212) 834-2611 John Sim (1-212) 834-3124 North America Fixed Income
chong.c.sin@jpmorgan.com john.sim@jpmorgan.com Strategy
JPMORGAN
Terrell Bobb (1-212) 834-5947 14 June 2024
terrell.bobb@jpmchase.com
CMBS Weekly
Has the interest shortfall recovery loophole been fixed?
• The annual CREFC New York conference took place this past week. We recap our take-
ways from our client meetings.
• A few months ago, in our special topic on servicer related risks, we warned investors to
review the recovery waterfall language as interest shortfalls related to P&I advance non-
recoverability determinations could be reimbursed ahead of principal depending on
how the language is written. We had noted that, in conduit CMBS, the recovery waterfall
language was patched in more recent deals in which an ‘imputed’ ASER concept was
introduced
• The 1740 Broadway note sale (BWAY 2015-1740) highlighted this recovery waterfall
language issue again as about $10mn of interest shortfalls that had accumulated under
the guise of a nonrecoverability determination were reimbursed ahead of principal, cost-
ing about 6pts of recoveries to the originally AAA rated bond on the deal
• The events of 1740 Broadway begs the question: how much of the SASB universe is
affected by this loophole? 61% of outstanding SASB deals issued since 2019 have
closed this loophole by fixing the recovery waterfall language
67
JPMORGAN
Figure 75: CMBS spread summary Figure 76: Summary of CMBS issuance and dealer holdings
This Change YTD Issuance ($bn) 2024 2023 % Diff.
Week 1w 1m YTD Conduit 11.7 7.0 67%
SASB 29.0 6.2 364%
Conduit New Issue (UST) CRE CLO 2.2 2.1 4%
Other 0.0 0.3 -100%
5yr Super-Senior LCF AAA 104 1 N/A N/A
Total Private Label 42.8 15.7 173%
10yr Super-Senior LCF AAA 98 0 2 -27
Freddie K 11.6 13.0 -10%
10yr AS 132 4 8 -63 Freddie Multi PC 7.0 7.1 -1%
10yr AA 158 3 9 -75 FRESB 0.5 0.3 78%
10yr A 199 -1 0 -166 Fannie MBS 15.5 19.4 -20%
Pre-COVID BBB- 611 -1 -44 -232 GNR PL 4.3 4.6 -7%
10yr BBB- 626 -1 -44 -252 Freddie Other 1.2 0.6 108%
10yr XA 125 -3 -15 -100 Agency CMBS 40.2 45.0 -11%
Total CMBS 83.0 60.7 37%
Agency CMBS (UST)
YTD Issuance ($bn) 2024 2023 % Diff.
Freddie K A1 (10yr) 48 0 1 -10
Private Label Fixed 18.0 11.5 57%
Freddie K A2 (10yr) 48 -1 0 -12 Private Label Floating 24.8 4.6 438%
Freddie K Floater (10yr) 54 0 -1 -16 Agency Fixed 38.3 37.8 1%
Freddie K X1 150 0 0 -30 Agency Floating 2.1 8.6 -76%
Freddie K X3 340 0 0 -85
FRESB A5H 115 0 0 -10 Dealer Holdings ($bn) 6/5/24 5/29/24 5/8/24
FRESB A10F 85 -2 -2 -10 Private Label 5.65 5.29 5.59
Agency CMBS 14.63 13.75 13.55
FNA DUS 10/9.5 TBA 50 -2 -2 -17
FNA DUS SARM 60 0 0 -13
GNR Project Loan (3.5yr) 135 0 0 -20
Source: J.P. Morgan Source: J.P. Morgan, Commercial Mortgage Alert, Federal Reserve Bank of New York, Fannie DUS
Disclose
Note: Dealer holdings reported with a 1-week lag
68
JPMORGAN
Weekly market snapshot

Market commentary - CREFC New York recap
The annual CREFC New York conference took place this past week and our conversations
with clients suggested that the market has moved past the worst fears that had emerged dur-
ing last year’s regional bank stress episode (snowballing bank failures that would catalyze
a wave of distressed loan sales, causing deep and lasting damage to balance sheets). Fast
forward more than a year, the tone has improved but investors have a sober understanding
that deep seated fundamental problems remain in the office sector that likely won’t go away
with can kicking. Still, can kicking is the preferred route versus a wave of distressed sales
for the time being so that there is more time for market participants to mitigate risk by build-
ing loss reserves and carefully selling positions.
Away from office, investors agreed that fundamentals across the core property types have
held up reasonably well. The elongation of the consumer cycle has benefitted the consumer
adjacent segments like retail and lodging. The Fed funds rate topping out also means that
sectors that are not fundamentally challenged are likely closer to the end in terms of cap rate
re-pricing.
Modifications were a big topic of focus in our meetings as most investment grade investors
felt that modifications have been too borrower-friendly. In some cases, there were rumors
of refinancing packages that were available to borrowers but they received modifications
anyway. In such cases, investors felt that special servicers should have bargained harder on
behalf of the Trust. Clearly, extensions without paydowns present material opportunity
costs to up-in-stack investors while those towards the bottom of the stack may prefer them
in order to avoid near-term writedowns. Hence, the tension across the CMBS capital stack
is palpable in some of these deals. In our view, post-mod re-defaults remain a concern. Will
these loans receive more mods when extension terms end or will they be flushed? Time will
tell and soon enough as we should start to see the end of extension terms over the next several
quarters.
Few more points of deep dissatisfaction among investors: servicer-related risks, lack of
timely disclosures on material events, and the lack of subordination of nonrecoverability
related interest shortfall recoveries to principal. All of these issues further obfuscate the
investment and risk management process. In the case of servicer-related risks, actions like
holdbacks are a unilateral servicer decision and are totally unpredictable on both frequency
and scale. So are nonrecoverability determinations that happen to cause related interest
shortfalls to be paid ahead of principal in large swathes of 2.0 deals (more on this below).
As for disclosures, the CMBS market has not had a great track record of timely and transpar-
ent disclosures including financials and workout details. In stressful times like today, these
problems are much more frustrating than before. We can certainly sympathize as we thrive
on data and we’ve seen instances where publicly traded REIT sponsors will disclose materi-
al events via press releases or quarterly earnings reports only to find that the monthly CMBS
remit data is late to the disclosure party. The industry as a whole has a duty to address some
of these problems or risk further erosion of confidence in a market that seems to grow in bad
reputation.
The large pickup in new issue volumes came up in practically every meeting. On the positive
side, new product that was sorely lacking is a welcome sight for investors who have cash
to spend. On the negative side, investors noted underwriting and collateral selection creep
with LTVs and DSCRs seemingly getting worse with each successive deal. Many com-
plained that a lot of the industrial SASB floaters were underwritten to very thin DSCRs,
69
JPMORGAN
leaving little room for error. And recent softness in new issue industrial SASB pricing and
a reported deal being pulled from the market indicate that investors are drawing the line in
the sand. We think this kind of investor vigilance is healthy.
Some investors including money managers voiced their desire to source more fixed-rate
product. So much of recent issuance has been floaters, which don’t look as great if/when the
Fed begins to cut. In anticipation of this, these investors are looking to increase their fixed-
rate exposures. From this perspective, the 5yr conduit deals have been a hit. Order books
are deep for this format and the product appears to have staying power as borrowers do not
necessarily want to term out financing in 10yr format given high rates but also because there
is a lot of cashflow transition in the CRE market. And investors like the higher yields at the
5yr point and in with curve inversion.
On valuations, most agreed a lot of the juice has been squeezed after a significant (and fairly
rapid) rally to start the year. Spreads look about fair to their corporate counterparts for the
most part. More credit savvy investors highlighted more interesting opportunities that exist
in seasoned deals. Indeed, we also think this is where CMBS investors can make money and
frankly where the value of the CMBS specialist is proven. It’s a security picker’s market!
Ratings Tracker
Figure 77: Summary of deals with ratings action

Summary of CMBS deals with ratings actions (upgrades and downgrades), June 7, 2024 to June 13, 2024
Upgrade (+) / # of Bonds w/ Senior Most Bond w/

Deal Name Deal Type CMBX Downgrade (-) Ratings Changes Ratings Changes Notches Rating Agency
COMM 2014-CR19 Conduit 8 both 5 AA 1-5 KBRA
DBUBS 2011-LC3A Conduit N/A - 6 AA 3-4 KBRA
JPMBB 2015-C30 Conduit 9 - 9 AA- 2-6 KBRA
Source: J.P. Morgan, Bloomberg Finance L.P.
Figure 78: CMBS ratings downgrades to upgrades ratio since March 2021
400 Downgrades 60
350 Upgrades 50
300
Ratio(rhs)
40
250
200 30
150
20
100
10
50
0 0
Mar 21 Sep 21 Mar 22 Sep 22 Mar 23 Sep 23 Mar 24
Primary Markets
70
JPMORGAN
Figure 79: Summary of recently priced deals

Summary of CMBS deals that have priced between June 7, 2024 to June 13, 2024
Deal Name Pricing Date Deal Type Deal Size ($mn) Pricing Spread
A: TSOFR+168
JW 2024-MRCO 6/11/2023 Floating rate SASB $590 B: TSOFR+200
C: TSOFR+245
A: J+135
B: J+180
WFCM 2024-1CHI 6/11/2023 Fixed rate SASB $415 C: J+230
D: J+280
E: J+370
FRETE 2024-ML23 6/11/2023 Freddie Tax-exempt $246 J-17
A1: J+85
A2: J+135
A3: J+135
BANK 2024-BNK47 6/11/2023 Conduit CMBS $1,082 ASB: J+85
A5: J+95
AS: J+135
B: J+160
C: J+200
A: TSOFR+185
B: TSOFR+220
GSMS 2024-MARK 6/13/2024 Floating rate SASB $300 C: TSOFR+262
D: TSOFR+345
E: TSOFR+450
Has the interest shortfall recovery loophole been fixed?

A few months ago, in our special topic on servicer related risks, we warned investors to
review the recovery waterfall language as interest shortfalls related to P&I advance non-re-
coverability determinations could be reimbursed ahead of principal depending on how the
language is written. We had noted that, in conduit CMBS, the recovery waterfall language
was patched in more recent deals in which an ‘imputed’ ASER concept was introduced. At
the time we wrote:
“…the third prong of the “Application Priority of Mortgage Loan Collections or Whole
Loan Collections” effectively introduces an ‘imputed’ ASER concept under (A)(y) whereby
NRA related shortfalls above and beyond current or future ASERs are prioritized above
principal payments. An imputed ASER essentially accounts for future appraisal-based
ASERs applicable after a servicer’s determination of non-recoverability.”
Fast forward three months, the 1740 Broadway note sale (BWAY 2015-1740) highlighted
this issue again as about $10mn of interest shortfalls that had accumulated under the guise
of a nonrecoverability determination were reimbursed ahead of principal, costing about 6pts
of recoveries to the originally AAA rated bond on the deal. And lo and behold, the deal’s
recovery waterfall language did not contain the imputed ASER language. The waterfall lan-
guage simply subordinates, below principal, unpaid interest due to reduced P&I advances
in connection with related Appraisal Reduction Amounts (ARA). To be clear, an ARA was
recorded in the same remit period the master servicer declared P&I advances nonrecover-
able on this deal. However, the interpretation here seems to be that the reduction in P&I
advances due to nonrecoverability supersedes those related to ARA. The patched language
directly addresses this loophole.
71
JPMORGAN
The events of 1740 Broadway begs the question: how much of the SASB universe is affected
by this loophole? This issue is particularly important for SASB given the fact that these deals
are backed by single loans. If the master servicer declares P&I advances nonrecoverable on
a SASB loan, there is risk of IG investors being shorted a substantial amount of principal
recoveries. To answer this, we painstakingly dug through the recovery waterfall language
of all outstanding SASB deals stretching back to 2018 (370 in total), tabulating whether each
deal has or does not have this imputed ASER language. We stopped at 2018 as we discovered
all 2018 deals did not have this language, suggesting deals issued prior to 2018 also likely
do not have this language. Excluding 2018 and counting from 2019 and onwards, when the
imputed ASER language began to be inserted into the recovery waterfall language, we
found that 198 out of 327 deals or 61% by count included this imputed ASER language
(Figure 80). 110 deals (34%) did not have this language and 19 (6%) were single-tranche
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securitizations where this concern is a moot point (labeled as N/A).
Figure 80: About 61% of outstanding SASB deals issued since 2019 fixed the nonrecoverability related
interest shortfall recovery priority loophole in the recovery waterfall language. The remaining are
exposed to this risk
Total number and percentage split of outstanding SASB deals that fixed the nonrecoverability related interest shortfall recovery
priority loophole and those that this loop remains by deal vintage
N/A NRA Loophole Exists NRA Loophole Fixed Total # of Deals (rhs)
100% 120
80% 100
80
60%
60
40%
40
20% 20
0% 0
2018 2019 2020 2021 2022 2023 2024
Source: J.P. Morgan, Trepp, Deal Documents
Note: Only includes deals that have closed. Deals marked as ‘N/A’ are single-tranche securitizations in which the interest shortfall recovery
consideration is a moot point.
As Figure 81 shows, even after the imputed ASER language was introduced to the recovery
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waterfall in 2019 for SASB deals, the application of this language has been quite inconsis-
tent although the application rate has increased over time (with the odd exception of 2022).
We don’t have a good explanation for this vexing inconsistency. We’ve cut the data by book-
runners, issuer/underwrite counsels, and initial DCH and couldn’t find any discernable pat-
tern. Nonetheless, every issuer should include this language into every new issue deal to
preserve the spirit of the recovery waterfall.
72
JPMORGAN
Figure 81: The loophole fix in the recovery waterfall is quite inconsistent across vintages and property types. Every issuer should fix this language in
new issue deals
Total number and percentage split of outstanding SASB deals that fixed the nonrecoverability related interest shortfall recovery priority loophole and those that this loop remains by
deal vintage and property type
Manufactured
Vintage Office Lodging Mixed Use Multifamily Industrial Retail Self Storage Housing Healthcare Other Total Count
2019 41% 58% 13% 25% n/a 25% n/a n/a n/a 0% 54
2020 61% 38% 50% 33% 100% 100% n/a n/a n/a n/a 37
2021 68% 54% 82% 83% 71% 89% 0% 50% 0% 0% 110
2022 50% 40% 70% 88% 29% 83% 50% n/a n/a 0% 57
2023 100% 80% 67% n/a 50% 91% 0% n/a n/a 25% 33
2024 67% 73% 100% 67% 63% 50% 100% n/a n/a 100% 36
2019-2024 59% 59% 63% 64% 59% 79% 44% 50% 0% 22% 61%
Total Count 83 68 46 44 32 33 9 2 1 9 327
Source: J.P. Morgan, Trepp, Deal Documents

Note: Only includes deals that have closed. Deals marked as ‘N/A’ are single-tranche securitizations in which the interest shortfall recovery consideration is a moot point.
For CMBS investors interested in receiving our SASB deal level tabulation of whether
the recovery waterfall language has or does not have this imputed ASER language,
please reach out to the analysts.
73
JPMORGAN
Weekly Tracker
Figure 82: Delinquency rate Figure 83: Delinquency cure rates
Conduit CMBS 30-day+ delinquency rate including FC/REO and NP matured (%) Conduit CMBS 30 day+ delinquency to performing transition rates (%)
30% IN LO MF OF 4% IN LO MF
RT OT Total OF RT OT
25%
3%
Total
20%
15% 2%
10%
1%
5%
0% 0%
Jun-20
Jun-21
Jun-22
Jun-23
Apr-20
Oct-21
Oct-22
Aug-20
Oct-20
Dec-20
Apr-21
Dec-21
Apr-22
Apr-23
Aug-23
Oct-23
Dec-23
Apr-24
Feb-21
Aug-21
Feb-22
Aug-22
Dec-22
Feb-23
Feb-24
Jul-20
Jul-23
Jul-21
Nov-20
Nov-21
Jul-22
Nov-23
Mar-20
Sep-22
Nov-22
May-20
Sep-20
Jan-22
Mar-22
Jan-21
Mar-21
Sep-21
May-21
May-22
Jan-23
Mar-23
May-23
Sep-23
Jan-24
Mar-24
May-24
Source: J.P. Morgan, Trepp Source: J.P. Morgan, Trepp
Figure 84: Specially serviced rate Figure 85: Office RTTO indexed to pre-pandemic levels
Conduit CMBS percentage of loans in special servicing (%) Kastle System Back to Work Barometer, weekly
100 Kastle Systems Back to Work Barometer
30% IN LO MF OF
New York
RT OT Total Chicago
25% 80
DC
20% SF
60
15%
10% 40
5%
20
0%
Jul-20
Jul-21
Jul-22
Jul-23
Jan-21
Jan-22
Jan-23
Jan-24
Mar-20
May-20
Mar-21
May-21
Mar-22
May-22
Mar-23
May-23
Mar-24
May-24
Sep-20
Nov-20
Sep-21
Nov-21
Sep-22
Nov-22
Sep-23
Nov-23
0
Feb 20 Aug 20 Feb 21 Aug 21 Feb 22 Aug 22 Feb 23 Aug 23 Feb 24
Source: J.P. Morgan, Trepp Source: Kastle Systems, Bloomberg Finance L.P.
74
JPMORGAN
Cross Sector Spreads
Current Changes 5yr Trailing Percentile Rank

Product Tranche / Bucket 6/13/24 -1w -1m -1y Min Max 3yr 5yr 7yr
Conduit CMBS 3yr AAA 94 0 3 -65 26 463 34.9% 54.3% 66.9%
Treasury Spread (bp) 5yr AAA 140 -2 -2 -22 47 461 55.0% 68.6% 77.9%
5yr LCF AAA 104 1 8 N/A 96 108 74.2% 74.2% 74.2%
10yr LCF AAA 98 0 2 -59 59 340 30.1% 49.4% 62.0%
10yr AS 132 4 8 -93 74 440 25.7% 44.7% 60.3%
10yr AA 158 3 9 -190 90 565 24.7% 43.3% 59.6%
10yr A 199 -1 0 -324 123 756 20.6% 37.0% 52.8%
10yr BBB- 626 -1 -44 -307 263 1354 40.9% 56.7% 60.3%
XA 125 -3 -15 -176 90 535 18.5% 29.1% 43.0%
Freddie K 7yr A2 46 -1 6 N/A 6 100 44.4% 58.6% 69.7%
Treasury Spread (bp) 10yr A2 47 -2 -1 N/A 10 110 38.4% 53.5% 57.7%
2020 Vintage B 155 0 -3 -53 109 441 N/A N/A N/A
2020 Vintage C 190 0 -3 -52 158 593 N/A N/A N/A
X1 150 0 8 N/A 50 400 24.5% 39.1% 56.3%
X3 340 0 8 N/A 225 695 23.8% 35.9% 54.3%
SOFR Floater (DM) 54 0 7 N/A 19 90 41.1% 47.2% 47.2%
FRESB A5H (5yr Hybrid ARM) 111 0 12 N/A 2 131 68.2% 80.9% 84.9%
Treasury Spread (bp) A10F (10yr Fixed Rate) 84 -3 2 N/A 16 126 51.0% 68.8% 74.8%
Fannie DUS 7/6.5 TBA 47 -2 4 N/A 7 110 35.1% 48.8% 60.8%
Treasury Spread (bp) 10/9.5 TBA 49 -3 -3 N/A 14 135 28.5% 44.9% 45.9%
SOFR SARM (DM) 60 0 8 N/A 22 95 43.0% 51.8% 52.8%
Fannie ACES 7yr A2 47 -1 4 N/A 7 102 39.7% 51.0% 63.2%
Treasury Spread (bp) 10yr A2 49 -1 -2 N/A 12 120 34.4% 48.8% 49.9%
GNR Project Loans 3.5yr 134 -1 20 N/A 60 169 41.1% 65.2% 75.4%
Treasury Spread (bp) 7.5yr 154 -1 4 N/A 69 202 37.7% 63.3% 73.9%
12yr 149 -1 -6 N/A 80 237 33.8% 60.5% 71.7%
Production Coupon FN/FR 30yr PC (OAS) 16 -4 0 -35 -35 115 24.1% 40.8% 30.1%
FN/FR 30yr PC (ZV) 115 -3 2 -23 -2 173 46.9% 67.4% 76.7%
ABS 3yr AAA Credit Card 48 0 0 -17 12 207 45.9% 63.4% 73.1%
Treasury Spread (bp) 3yr AAA Prime Auto 62 0 -2 -33 15 207 32.8% 55.2% 67.7%
3yr BBB Subprime Auto 140 0 -15 -110 72 566 22.7% 39.4% 51.2%
CLO AAA 111 2 3 -66 101 408 4.9% 3.0% 16.2%
Discount Margin BBB 373 -2 -10 -130 323 972 24.4% 30.9% 49.0%
BB 774 -2 -11 -213 693 1,756 28.1% 37.5% 55.4%
JULI (ex-EM) 3-5yr 82 -1 -2 -50 58 407 21.6% 31.6% 29.3%
Treasury Spread (bp) 5-7yr 93 -3 -2 -50 71 372 19.2% 29.0% 24.9%
7-10yr 107 -3 -3 -59 87 368 18.1% 26.6% 22.9%
7-10yr A 92 -3 -3 -50 68 316 18.4% 32.4% 29.8%
7-10yr REITs 123 -2 -4 -81 98 350 19.3% 29.0% 20.7%
High Yield Domestic HY 332 -8 2 -118 317 1,139 4.0% 2.4% 1.7%
Spread to Worst (bp) Energy 252 -10 6 -131 234 2,395 4.0% 2.4% 1.7%
Swap Spreads 3yr 11 0 -3 -6 -6 24 22.0% 22.0% 22.0%
(bp) 5yr 3 -1 -2 -4 -8 15 18.2% 18.2% 18.2%
10yr -10 -1 -3 -12 -15 11 1.4% 1.4% 1.4%
75
JPMORGAN
Cross Sector Spreads (continued)
Current Changes 5yr Trailing Percentile Rank

Product Tranche / Bucket 6/13/24 -1w -1m -1y Min Max 3yr 5yr 7yr
CMBX (bp) AAA17 82 1 4 N/A 74 91 57.7% 57.7% 57.7%
AAA16 77 1 4 -22 70 119 22.1% 22.1% 22.1%
AAA15 74 1 3 -21 60 115 25.1% 25.1% 25.1%
AAA14 71 1 4 -19 45 109 43.5% 52.2% 52.2%
AAA13 67 1 4 -15 42 167 47.8% 59.8% 59.8%
AAA12 64 0 4 -13 37 162 51.6% 66.7% 70.4%
AAA11 60 0 3 -11 32 146 52.9% 68.6% 72.0%
AAA10 57 -1 3 -10 26 141 55.1% 71.1% 75.5%
AAA9 54 -3 1 -8 21 127 55.5% 71.4% 79.0%
AAA8 51 -2 -10 -4 18 117 54.1% 70.6% 79.0%
AAA7 0 0 0 -46 0 107 6.1% 3.3% 1.0%
BBB-17 493 1 6 N/A 482 583 17.5% 17.5% 17.5%
BBB-16 583 -2 12 -270 558 879 13.8% 13.8% 13.8%
BBB-15 601 -4 13 -295 375 922 31.8% 31.8% 31.8%
BBB-14 771 -2 2 -184 320 985 70.1% 74.7% 74.7%
BBB-13 848 1 -6 -206 339 1,151 61.1% 70.9% 70.9%
BBB-12 897 -6 -12 -320 309 1,282 59.2% 73.5% 76.4%
BBB-11 765 -8 9 -347 302 1,174 60.5% 71.9% 78.9%
BBB-10 1,282 -13 18 -294 297 1,819 67.5% 80.5% 86.0%
BBB-9 1,721 -1 38 134 301 1,850 96.4% 97.8% 98.4%
CDX (bp) 5yr IG 51 0 1 -20 44 152 11.4% 16.9% 14.2%
5yr HY 334 2 8 -108 267 882 23.5% 36.8% 39.3%
Source: J.P. Morgan
76
JPMORGAN
Publication Publication title

Date
CMBS Weekly
6/7/2024 CMBS Weekly: Issuance forecast revision and May 2024 remit update
5/31/2024 CMBS Weekly: 2024 YTD CMBS underwriting trends
5/17/2024 CMBS Weekly: FRESB - slow but still attractive
5/10/2024 CMBS Weekly: Buyouts and mods - a feature, not a bug
5/3/2024 CMBS Weekly: April 2024 remit review
4/26/2024 CMBS Weekly: Should we stay another night?
4/19/2024 CMBS Weekly: Renter nation
4/12/2024 CMBS Weekly: Now, this is commitment
4/5/2024 CMBS Weekly: March 2024 remit review - more of the same
3/22/2024 CMBS Weekly: Freddie Mac Tax-Exempt Loans
3/15/2024 CMBS Weekly: Tracking NYC return to office with location analytics
3/8/2024 CMBS Weekly: February 2024 remit review
3/1/2024 CMBS Weekly: How are CRE CLO managers managing? Part III
2/23/2024 CMBS Weekly: How are CRE CLO managers managing? Part II
2/9/2024 CMBS Weekly: How are CRE CLO managers managing? Part I
2/2/2024 CMBS Weekly: Rude awakening?
1/26/2024 CMBS Weekly: 5yr XAs can offer upside, updating our cash CMBS indices
1/19/2024 CMBS Weekly: Cracks in limited segments of multifamily emerging, CMBX 17 initial thoughts
1/5/2024 CMBS Weekly: December 2023 remit review
12/15/2023 CMBS Weekly: 2024 CRE outlook - part II
12/8/2023 CMBS Weekly: 2024 CRE outlook - part I
11/9/2023 CMBS Weekly: Underwriting review and 2024 thoughts
11/3/2023 CMBS Weekly: 2024 refi success rate outlook
10/27/2023 CMBS Weekly: The verdict on floating SASB extensions - TBD
10/20/2023 CMBS Weekly: Diving into FRESB
10/13/2023 CMBS Weekly: Will rating downgrades cause passive funds to sell CMBS?
9/29/2023 CMBS Weekly: Long on opportunity potential, short on will
9/22/2023 CMBS Weekly: Muted defeasance volumes present more refi headwinds
9/15/2023 CMBS Weekly: Aon Center re-appraisal and 1740 Broadway potential note sale
9/8/2023 CMBS Weekly: CMBS financials update and August 2023 remit review
Other periodicals Frequency
6/13/2024 CMBX Daily Analytics Daily
6/10/2024 CMBS Weekly Datasheet Weekly
6/10/2024 CMBS Credit Monthly Monthly
6/10/2024 Agency CMBS Databook Monthly
5/22/2024 CRE Observer Chartbook Quarterly
5/13/2024 Office Market Monitor Monthly
Ad-hoc publications of note
5/14/2024 1740 Broadway note sold: A post mortem
5/2/2024 The great debate: Macro and market questions by the dozen
5/2/2024 Credit Watch: Rate-atouille – what’s cooking in credit markets given recent rate moves?
4/5/2024 Credit Watch: Private Credit Uncovered – uncovering even more
2/12/2024 CMBS Special Topic: Servicer-Related Risks on the Rise As Market Conditions Remain Challenged
11/21/2023 Thoughts from the CREFC conference: Hopeful in the absence of new negative catalysts
11/21/2023 CMBS 2024 Outlook: Hope and dread
9/15/2023 CMBS Note: 1740 Broadway note sale update
6/23/2023 2023 CMBS Midyear Outlook: Just Keep Swimming
11/22/2022 CMBS 2023 Outlook: Down but not out
3/23/2023 Commercial Real Estate Overview: Stressing Banks, Insurance and REITs for CRE Weakness
77
Amy Sze, CFA AC (1-212) 270-0030 North America Fixed Income
amy.sze@jpmorgan.com Strategy
JPMORGAN
Akshit R Jaisinghani, CFA, FRM (1-212) 834-7041 14 June 2024
akshit.r.jaisinghani@jpmorgan.com
Asset-backed Securities
June 14, 2024
• ABS spreads mostly held firm this past week as autos saw spreads soften a touch on
supply pressure
• Device payment ABS maintain robust performance as a benchmark ABS sector while
offering some pickup over comparable credit card ABS
Dealers pile up inventory amidst heavy new issue supply

Most ABS spreads held firm this week, though the auto sector saw a touch of softness on
supply pressure. While the primary market maintains a brisk pace, secondary saw dealers
pick up some inventory. On indicative auto loan ABS spreads this week, AAA widened by
3-5bp and both BBB and BB widened by 10bp. Overall, relative value remains unchanged
as the credit curve continues to be flat-ish along with notable sponsor tiering. We still like
BBB subprime auto, currently at Treasury +150bp versus this year’s range of 140 to
225bp. BB offers additional pickup with indicative spreads at +345bp, but we prefer high
quality sponsors (sellers/servicers) when going down the capital structure. Our preference
for better corporate credits carries greater importance on CLNs where though pro-rata pay
structures and shorter WAL are more favorable towards subordinate investors than on ABS,
there are no secured/securitized assets backing CLNs. With one debut auto CLN priced thus
far this week and another in the pipeline, year-to-date offered supply of the sector stands at
$0.85bn, compared to $0.61bn and $1.28bn for full year 2023 and 2022, respectively.
Device payment ABS update

Herein, we provide an overview of device payment ABS. Verizon has been active in the
device payment plan (DPP) securitization since 2016 and was the lone issuer until 2022
when T-Mobile priced its inaugural TMUST 22-1 transaction. In May 2021, Verizon priced
$1.7bn of DPP backed ABS, VZMT 2021-A, the first issue from the Verizon master trust.
Of note, ABS transactions from Verizon prior to 2021 were all discrete trusts issued under
the VZOT ticker. Gross issuance for the DPP sector amounted to about 2% of total ABS
volume at $4.5bn and $5.3bn across 2022 and 2023, respectively. Year-to-date there have
been three VZMT transactions and one TMUST deal totaling $3.3bn in offered notes. Total
ABS outstanding is $12.7bn with 90% VZMT and 10% TMUST, with legacy VZOT paper
all paid off. Of note, with $11.5bn outstanding, Verizon is the largest ABS issuer in the “Oth-
er” category and has a robust secondary ABS market with 42% annualized turnover (trading
volume over outstandings) for 2024 year-to-date (Figure 1).
78
JPMORGAN
Figure 86: Recent device payment ABS collateral and structure snapshot
TMUST VZMT VZMT VZMT VZMT VZMT VZMT VZMT VZMT VZMT VZMT
2024-1 2024-3 2024-2 2024-1 2023-7 2023-6 2023-5 2023-4 2023-3 2023-2 2023-1
Pricing Date 2/5/2024 4/16/2024 1/9/2024 1/9/2024 11/9/2023 9/12/2023 9/12/2023 6/27/2023 4/18/2023 4/18/2023 1/20/2023
Deal Size ($mn) 500 875 750 1,165 576 557 396 746 279 932 1,000
Collateral
Aggregate Principal Balance ($mn) 713 25,751 24,728 24,728 23,646 23,040 23,040 22,472 21,549 21,549 18,900
Number of Receivables 1,286,084 50,543,391 46,945,667 46,945,667 45,040,724 43,478,530 43,478,530 41,424,457 38,230,435 38,230,435 33,085,850
Average Monthly Payment 38 23 24 24 24 24 24 25 25 25 26
Weighted Average Remaining Term (months) 18 25 25 25 25 26 26 26 27 27 26
Weighted Average FICO 707 723 724 724 723 723 723 723 723 723 723
% upgrade eligible 57% 56% 56% 56% 56% 56% 56% 57% 58% 58% 58%
% of receivables with insurance 51% 29% 30% 30% 30% 31% 31% 31% 31% 31% 33%
Initial Class A Credit Enhancement
Subordination 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%
Reserve 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%
OC (excluding YSOA) 9% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%
Initial Class A CE Total 20% 19% 19% 19% 19% 19% 19% 19% 19% 19% 19%
Initial Class B CE Total 15% 13% 13% 13% 13% 13% 13% 13% 13% 13% 13%
Initial Class C CE Total 10% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9%
Discount Rate 12% 12% 11% 11% 12% 12% 12% 11% 11% 11% 10%
Revolving Period (months) 24 36 59 23 36 60 24 36 60 24 36
Expected loss (M/F/S) 5%/4%/- 5%/3%/- 5%/-/4% 5%/-/4% -/3%/4% 5%/3%/- 5%/3%/- 5%/-/4% -/3%/4% -/3%/4% 5%/4%/-
Source: J.P. Morgan, S&P, Fitch, Moody’s

Note: Aggregate principal balance for VZMT is based on total master trust balance as of the deal closing date. Deal size reflects offered notes.
T-Mobile’s TMUST 2024-1 pool of DPP receivables averaged $38 on monthly payment and
have remaining term of 18 months. In comparison, the VZMT 2024-3 pool averaged $23
average monthly payment and remaining term of 25 months. Reflecting the remaining
terms, TMUST 24-1 had a 2-year revolving period, while VZMT 24-3 has a 3-year revolv-
ing period on the ABS structure. Additionally, the share of receivables with insurance is
significantly higher for TMUST 24-1 at 51% as compared to 29% for VZMT 2024-3, while
proportion of those eligible for an upgrade is roughly the same for both pools at about 56%.
Carriers offer promotions that allow customers to upgrade their current wireless devices to
new models. Upgrades are treated as prepayments for DPP ABS transactions and require
direct payment from the carrier to the trust. Receivables in the DPP transactions do not pay
any interest and instead yield is generated through discounting, the rate of which is 11.75%
for TMUST 24-1, 25bps higher than VZMT 2024-3 at 11.50%. Total initial credit enhance-
ment (CE) includes overcollateralization, subordination and a non-declining reserve
account. These figures have stayed consistent for recent VZMT transactions with class A
(AAA rated) CE at 19.25%, class B (AA rated) CE at 13.00% and class C (A rated) CE at
9.25% while CE levels for TMUST 24-1 tracked 19.5%, 14.5% and 9.5% for Classes A, B
and C respectively.
Credit performance for the sector has been robust and comparable to high-quality consumer
loans. In addition to the high quality consumer base, high utility and reliance on the wireless
devices and services coupled with a low monthly $ payment ($23 for VZMT 24-3 and $38
for TMUST 24-1) is reflected in the healthy credit trends. VZMT 30+ delinquencies for
April 2024 tracked 1.4% and TMUST came in at 0.9%, compared to our bankcard ABS at
1.4% and prime auto loan ABS index at 1.4% (Figure 2). Similarly, losses trend tracked
slightly higher CDRs for TMUST versus VZMT (Figure 3). These transactions incorporate
revolving and amortization periods, amortization triggers, pool composition tests and credit
enhancement tests. Performance linked amortization triggers typically consist of 1) annual-
ized cumulative 3-month loss rate > 10% and 2) 3-month average 90+ delinquencies > 2%,
which if breached result in early amortization to pay down notes (i.e., the trust stops revolv-
ing). Both, VZMT and TMUST have historically demonstrated significant margins to the
aforementioned trigger thresholds (Figure 4 and Figure 5).
79
JPMORGAN
Figure 87: 30+ delinquency rate across VZMT and TMUST versus Figure 88: Default rates across VZMT and TMUST versus bankcards and
bankcards and prime auto loan ABS index prime auto loan ABS index
2.0%
4.0%
1.5%
3.0%
1.0%
2.0%
0.5% 1.0%
0.0% 0.0%
Jan 21 Jul 21 Jan 22 Jul 22 Jan 23 Jul 23 Jan 24 Jan 21 Jul 21 Jan 22 Jul 22 Jan 23 Jul 23 Jan 24
Bankcard Prime Auto TMUST 22-1 VZMT Bankcard Prime Auto TMUST 22-1 VZMT
Source: J.P. Morgan, Intex Source: J.P. Morgan, Intex

Note: above is 1mo for all; charge-offs for cards
Figure 89: Pool performance versus delinquency amortization trigger Figure 90: Pool performance versus loss amortization trigger
2.0% 10%
9%
8%
1.5%
7%
6%
1.0% 5%
4%
3%
0.5%
2%
1%
0.0% 0%
Aug 22 Nov 22 Feb 23 May 23 Aug 23 Nov 23 Feb 24 May 24 Aug 22 Nov 22 Feb 23 May 23 Aug 23 Nov 23 Feb 24 May 24
VZMT TMUST 22-1 Delinquency trigger VZMT TMUST 22-1 Loss trigger
Source: J.P. Morgan, Intex Source: J.P. Morgan, Intex

Note: Calculated as average of 90+ DQ for preceding three collection periods Note: Calculated as average of gross charge-offs for preceding three collection periods
Device payment ABS is comparable to credit cards ABS, offering some spread pickup.
While credit cards are structured as soft bullets (bullet payment on expected maturity date),
device payment ABS feature an amortization period (full-turbo and sequential principal
payments) once the revolving period ends. Nonetheless, both have linkage to sponsor risks.
Credit card originators are heavily regulated banks versus device payment originators are
specialty lenders. Furthermore, part of the cashflows such as those resulting from device
upgrades and/or true up payments for promotions/discounts, require direct contribution
from the carrier (Verizon or T-Mobile) and further exposes the trust to non-performance.
ABS device payment sponsors do have investment-grade ratings with Verizon Communica-
tions Inc. at Baa1/BBB+/A- (M/S/F) and T-Mobile at Baa2/BBB/BBB+. Recent new issue
prints for VZMT are 10bp on top of our 3yr AAA credit card ABS, while TMUST printed
about 24bp wider on the same benchmark (Figure 6). However, recent prints are reflective
of the broader year-to-date spread rallies across ABS asset classes. Through 2022-2023
VZMT AAA 3yr new issue prints were as wide as 25bp over comparable card ABS bench-
mark, while that differential for Class A (AAA 2.48yr) on the inaugural TMUST 22-1 trans-
action in October 2022 was 40bp.
80
JPMORGAN
Figure 91: VZMT and TMUST new issue vs credit card AAA 3yr benchmark indicative spread
150
125
100
75
50
25
0
Jan 22 Apr 22 Jul 22 Oct 22 Jan 23 Apr 23 Jul 23 Oct 23 Jan 24 Apr 24
Credit card AAA 3yr VZMT 3yr VZMT 2yr TMUST 2yr
Source: J.P. Morgan

Note: Above new issue for VZMT and TMUST ABS transactions; credit card AAA 3yr indicative benchmark spreads
Week in review
11 ABS transactions totaling $7.1bn across equipment, consumer, small business loans,
commercial fleet , prime and non-prime auto priced this week. This brings 2024 year-to-date
ABS supply to $165.7bn, versus $117.6bn recorded over the same period last year. June
supply stands at $19.5bn versus $20.1bn over the full month of June 2023. Looking to the
forward calendar, there are 10 deals totaling $6.9bn currently in pre-marketing.
81
JPMORGAN
Data appendix
Figure 94: ABS spread performance
Figure 92: ABS supply
bp
$bn
Benchmark Current 1-week 10-week
2020 2021 2022 2023 2023 YTD 2024 YTD
6/13/2024 Change Avg Min Max
Credit Cards 4 17 32 23 10.5 11.2
Credit Card - Fixed Rate
Bank/Charge 4 17 30 21 10.2 10.0
Retail 0 0 2 2 0.4 1.3
2-yr AAA Treasury 44 0 44 42 46
Autos 98 132 110 146 65.4 91.2 3-yr AAA Treasury 48 0 48 46 50
Prime Loan 46 50 50 73 28.3 40.7 5-yr AAA Treasury 55 0 57 53 60

Non-prime Loan 28 43 33 34 16.3 23.0 10-yr AAA Treasury 80 0 83 78 88
Lease 19 27 16 23 11.3 17.7 B-Piece (5-yr) Treasury 85 0 87 83 91
Fleet & other 6 13 11 16 9.6 9.8 C-Piece (5-yr) Treasury 129 0 131 127 135
Student Loans 17 26 7 7 3.8 4.5 Credit Card - Floating Rate
FFELP 5 8 0 0 0.0 0.0 2-yr AAA SOFR 43 0 47 43 50
Private Credit 12 18 7 7 3.8 4.5 3-yr AAA SOFR 53 0 57 53 60
Equipment 13 19 22 21 8.1 13.0 5-yr AAA SOFR 78 0 82 78 85
Floorplan 4 1 1 4 2.1 4.9 10-yr AAA SOFR 108 0 112 108 115
Unsecured Consumer 9 17 16 14 5.8 8.1
B-Piece (5-yr) SOFR 113 0 117 113 120
MPL 4 8 9 8 3.5 3.1
C-Piece (5-yr) SOFR 158 0 162 158 165
Branch & other 5 9 7 7 2.3 5.0
Auto - Prime
Miscellaneous 34 55 56 41 21.8 32.8
Total ABS 179 267 244 256 117.6 165.7
% 144A
57% 61% 50% 56% 55% 61%
% Floating-rate 4% 5% 4% 7% 6% 8%
3-yr AA Treasury 85 5 84 80 90
Source: J.P. Morgan. Student Loans (FFELP)
3-yr AAA SOFR 90 0 90 90 90
Figure 93: Other ABS supply 7-yr AAA SOFR 110 0 110 110 110
$bn Private Credit Student Loan
2020 2021 2022 2023 2023 YTD 2024 YTD 3-yr AAA SOFR 105 0 103 100 110
Franchise/Whole Bus. 4.8 13.7 6.6 1.7 0.8 6.1 Unsecured Consumer MPL
Data Center 2.6 6.2 1.0 5.9 2.1 4.7 1-yr AAA Treasury 75 0 81 75 85
Fiber 0.2 1.3 1.2 4.0 1.8 3.5 3-yr AA Treasury 125 0 152 125 165
Device Payment 4.4 3.1 5.3 4.5 2.2 3.3
3-4yr A Treasury 170 0 187 170 195
Solar 2.7 3.2 4.0 4.2 2.3 3.0
3-4yr BBB Treasury 240 0 261 240 270
Stranded Ast 2.3 21.2 7.8 5.9 2.1
3-4yr BB Treasury 460 0 491 460 505
Timeshare 1.9 2.4 2.6 2.5 1.0 2.0
Auto - Subprime
Insurance 2.2 1.1 2.3 2.4 1.2 1.8
Aircraft 2.6 8.5 1.1 0.7 1.0
Railcar 0.5 2.8 0.9 0.2 0.6 2-yr AAA Treasury 80 10 73 70 80
SBL 0.4 1.0 1.7 1.1 0.5 0.5 3-yr AA Treasury 95 10 91 85 95
Trade Rec. 0.3 0.5 3-yr A Treasury 115 10 112 105 115
Containers 7.3 5.6 0.8 0.3 0.3 0.4 3-yr BBB Treasury 150 10 151 140 160
Healthcare 0.4 0.4 0.4 0.4 0.3 3-yr BB Treasury 345 10 345 335 350
Taxes 0.5 0.1 0.3 0.1 0.3
PACE 0.3 0.8 0.5 0.7 0.4 0.3 Source: J.P. Morgan.
Miscellaneous 4.0 2.3 6.3 4.1 2.8 2.6
Total Other ABS 34.4 55.2 56.0 40.8 21.8 32.8
82
JPMORGAN
Figure 95: Fixed-rate AAA ABS (3-year) spreads to Treasury Figure 96: Floating-rate AAA ABS (3-year) spreads to SOFR
bp bp
350 250
Prime Auto (AAA, 3yr) Credit Card
300 Credit Card (AAA, 3yr) Prime Auto
Subprime Auto (AAA, 2yr) 200 FFELP SL
250 MPL (AA, 3yr) Private Credit SL
200 150
150
100
100
50
50
0 0
Jun-20 Dec-20 Jun-21 Dec-21 Jun-22 Dec-22 Jun-23 Dec-23 Jun-20 Dec-20 Jun-21 Dec-21 Jun-22 Dec-22 Jun-23 Dec-23
Source: J.P. Morgan. Source: J.P. Morgan. Note: Spreads to LIBOR till June 29, 2023 and to SOFR since then.
Figure 97: AAA cross sector spreads (3-year) to Treasury/SOFR Figure 98: BBB subprime auto ABS (3-year) and MPL unsecured
bp consumer ABS (3-4year) vs. BBB financials to Treasury
bp
200 700
Prime Auto Loan ABS Subprime Auto ABS
Credit Card ABS 600
FFELP Student Loan ABS JULI Financials (1-3yr)
150 CMBS 500 MPL (3-4yr)
JULI AA Financials (1-3yr)
400
100
300
200
50
100
0 0
Jun-20 Dec-20 Jun-21 Dec-21 Jun-22 Dec-22 Jun-23 Dec-23 Jun-20 Dec-20 Jun-21 Dec-21 Jun-22 Dec-22 Jun-23 Dec-23
Source: J.P. Morgan. Note: FFELP Student Loan ABS spread to LIBOR till June 29, 2023 an to Source: J.P. Morgan.
SOFR since then.
Figure 99: ABS secondary trading weekly TRACE volume

$bn
6
0
1 5 9 13 17 21 25 29 33 37 41 45 49
Week
2021 2022 2023 2024
Source: J.P. Morgan, TRACE
83
Eric Beinstein AC (1-212) 834-4211 North America Fixed Income
eric.beinstein@jpmorgan.com Strategy
JPMORGAN
14 June 2024
Corporates
• The economic data for May, including strong payroll numbers and declining
inflation, have been highly favorable for markets, pushing equities to new peaks.
Powell has managed to temper expectations for interest rate cuts this year to just
one, while conveying a positive outlook that conditions for lower rates are grad-
ually materializing. The JULI spread closed at 101bps on Wednesday, within the
narrow 99-104bp range that has prevailed for the past two months. Several posi-
tive factors could potentially allow the JULI to sustainably fall below 100bp,
although it has only briefly dipped below this level four times in the past two
months.
• Key positives for HG credit spreads include strong equity markets rally. Dealer
positions are reasonable, at the lighter end for 5-10y though heavier positioning
in the short end of the curve. Additionally, the WTD supply has been very light,
totaling under$6bn, marking the lightest weekly supply since mid-March 2023.
The seasonal slowdown in supply appears to be underway. The pension funding
ratio reached 103.4% at the end of May, the highest level since Nov’22, likely
driving a slow but steady shift into fixed income investments from pension
funds. Fund flow trends also turned quite favorable last week, recording the
highest weekly inflow in two months.
• There are some headwinds that could impact HG credit spreads. Valuations are
tight leaving limited room for further tightening, as spreads have been tighter
than current levels only 4% of the time since 2000. Additionally, the recent
decline in yields poses a challenge. It remains uncertain whether it will cause
some investors to step back, as was observed a week ago when yields declined.
While the move down in yields this week is due to benign inflation data which
is a favorable driver, historically spreads struggle to tighten when yields are
declining, until they stabilize again.
• Inside we also discuss that the impact of the French elections should be limited
on the broader market, rising hedging costs in Europe and the new Fed forecast
(1 cut in November) and rates forecasts (higher yields than previously expected)
and their likely impact on HG credit spreads.
The macro backdrop continues to be very supportive but lower

yields may be a near term headwind to tighter spreads
The economic data for May, including strong payroll numbers and declining inflation, have
been highly favorable for markets. This positive economic backdrop has propelled equities
to new record highs. Federal Reserve Chairman Jerome Powell has managed to temper
expectations for interest rate cuts this year, reducing them to just one in line with prior mar-
ket expectations, while simultaneously conveying a positive outlook that conditions for
lower rates are gradually materializing. The JULI spread closed on Wednesday at 101bp,
the midpoint of the narrow 99-104bp range which has prevailed for the past two months.
Looking forward, there are several positive factors which could potentially allow the JULI
to sustainable fall below 100bps. Although JULI spreads have dipped below this level four
times in the past two months, they have only stayed there for an average of two days each
time before retracing higher.
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JPMORGAN
14 June 2024
Figure 100: JULI spreads have struggled to stay sub-100bp Figure 101: Yields are drifting lower, but not yet to a level which is
likely to reduce demand
120 JULI Spread 5.9 %
bp JULI Yield
115
5.7
110
5.5
105
100 5.3
95
Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24 5.1
Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24
Source: JP Morgan Source: JP Morgan
The key positives influencing HG credit spreads include:
• Strong Equity Markets: The robust performance of equity markets has made HG
spreads appear 2bp too wide relative to the S&P 500 index.
• Dealer Positions: Dealer positions are reasonable, standing at 48% of their 3m range
overall, but only at 1% in the 5-10 year tenors. Dealers are more heavily positioned in
the short end of the yield curve.
• Light Supply: The WTD supply has been very light, totaling under $6bn, marking the
lightest weekly supply since mid-March 2023 outside of holiday season. As well, 72%
of the deals (28 out of the 39) in June so far were smaller than $1bn. This brings the
average deal size down to $933mn MTD, the lowest since Nov’13 (excluding 3 Decem-
ber months in between). This share of <$1bn deals compares to 59% last month and only
38% in Feb when supply was at its peak and average deal size was $1.9bn.
• Pension Funding Status: The funding status for the 100 largest corporate pension plans
reached 103.4% at the end of May, the highest level since November 2022. This
improved funding status is likely to continue driving a slow but steady shift into fixed
income investments from pension funds. However, the 10s30s spread curve has steep-
ened to 21bp, its steepest level since earlier this month, a reminder that pension funds
have been quite slow in their shift into fixed income. Also, pension funds are not just
focused on 30yr bonds as the average duration of liabilities for some plans becomes
shorter.
• Positive Fund Flow Trends: Fund flows turned quite positive last week, recording the
highest weekly inflow in two months. However, the recent decline in yields may slightly
dampen this trend.
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JPMORGAN
14 June 2024
Figure 102: The average deal size of $922mn MTD is the lowest since Nov Figure 103: High pension funding status has contributed to a flat 10s30s
2013, excluding Decembers curve over the past two years
Average Deal Size ($mn) June MTD 110% US Pension Funded Ratio, lhs 10s30s spread, rhs 60
2500
105% 50
100%
2000 40
95%
30
1500 90%
20
85%
1000 10
80%
75% 0
500
Jan-13 Jul-14 Jan-16 Jul-17 Jan-19 Jul-20 Jan-22 Jul-23 70% -10
Jan-12 Aug-13 Mar-15 Oct-16 May-18 Dec-19 Jul-21 Feb-23
Source: J.P. Morgan, Dealogic Source: J.P. Morgan, Milliman
Despite these positives, there are some headwinds that could impact HG credit spreads:
• Tight Spreads: The current tightness of spreads leaves limited room for further tighten-
ing. Spreads have been tighter than the current levels only 4% times historically speak-
ing (since 2000). Also, spreads as a % of yields is currently at 16.3% which is 3% lower
than the historical average of 19.4% for periods when the index yield is above 5%, as
it is today.
• Decline in Yields: The decline in yields poses a challenge. Before the NFP report was
released last Friday, HG bond yields had declined by 27bp over a five-day period, con-
tributing to a 5bp widening in spreads. It remains uncertain whether the recent move
lower in yields on Wednesday will cause some investors to step back, as was observed
a week ago.
Last week's yield decline was driven by weaker economic data, whereas Wednesday's
decline was due to more benign inflation data, following a strong labor market report. This
is a ‘better’ reason for lower yields, and may lead investors to think that the trend of lower
yields is more persistent, and worth buying into. The overall outlook suggests that a supply/
demand imbalance will likely push HG credit spreads modestly tighter. However, given the
current tight levels, there is limited room for significant further tightening.
Figure 104: Spread as a % of yield is 3% lower than the average for periods when the index yield is
above 5%, as it is today
90% HG YTW >5% 12%
Spread as a % of yield, lhs
70% HG Yield, rhs 10%
8%
50%
6%
30%
4%
10% 2%
Feb-90
Aug-92
Feb-95
Aug-97
Feb-00
Aug-02
Feb-05
Aug-07
Feb-10
Aug-12
Feb-15
Aug-17
Feb-20
Aug-22
-10% 0%
Source: JP Morgan, Bloomberg L.P. Finance
Another election surprise
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JPMORGAN
14 June 2024
The result of the EU elections last Sunday were relatively in line with polling data and mar-
ket expectations, but the resulting call from French president Macron for new French legis-
lative elections was certainly not. The spread between French and German 10yr government
bonds widened 13bp or 28% in the space of just 2 days, which is the widest its been since
last October. The range of possible election outcomes is quite large at this stage, as discussed
further by our European colleagues here: French election: thoughts on outcome and market
reaction.
Figure 105: French gov’t bond yields have widened significantly vs German yields in the past 2 days
70
bp France Govt 10yr yields - Germany Govt 10yr yields
65
61
60
55
50
45
40
Jun-23 Aug-23 Oct-23 Dec-23 Feb-24 Apr-24 Jun-24
The implications for US credit market overall are not significant with French-based compa-
nies making up just 1.67% of our JULI index (and just 0.27% of the Bloomberg index on
account of many 144A for life securities). The fact that French bank bonds are an off-index
position for many investors is interesting in terms of how they may trade in the days before
and after the French election in the coming weeks. European banks (ex UK) have been
strong performers YTD (-27bp vs. -11bp for the JULI overall) providing a boost to perfor-
mance for investors with any position if they benchmark vs an index with no index weight.
Over the past week, they are 8bp wider vs. the JULI which is 1bp wider; so, they have given
back only a small part of this outperformance. JPM Financials analyst Kabir Caprihan
remains overweight the sector, viewing the recent spread widening as a buying opportunity.
We have seen strong compression in HG credit all year, with investors looking for any sec-
tors and credits which have lagged as offering value in a tight spread market. This has con-
tributed to outperformance of Financials overall. As we expect the strong market technical
to continue it will likely take ongoing negative news to keep the recent widening from
reversing.
Figure 106: The 10 largest French USD bond issuers

Ticker Issuer Par Value $mn % in JULI Index
BNP BNP Paribas SA $33,000 0.40%
SOCGEN Societe Generale SA $26,300 0.32%
BPCEGP BPCE SA $25,300 0.31%
ACAFP Credit Agricole SA $14,450 0.17%
TTEFP TotalEnergies Capital International SA $7,600 0.09%
BFCM Banque Federative du Credit Mutuel SA $6,600 0.08%
TTEFP TotalEnergies Capital SA $5,250 0.06%
ORAFP Orange SA $4,211 0.05%
URWFP WEA Finance LLC $2,500 0.03%
AIFP Air Liquide Finance SA $2,117 0.03%
The French election was not the first election surprise in recent weeks with somewhat unex-
pected outcomes in India and Mexico as well. The next focus may be the UK election on
87
JPMORGAN
14 June 2024
July 4th as UK risk is much larger in US credit. UK companies comprise 4.88% of JULI (and
4.13% of Bloomberg index). Election poll there currently showing parliament may flip from
the Conservatives to Labour, which could have significant policy and economic implica-
tions over time (the Conservatives have been in power since 2010). Needless to say, the
election with the largest impact to JULI is of course right here in the US. The first Presiden-
tial debate is just about 2 weeks away (June 27) which will renew market focus on the elec-
tion dynamic here.
EUR hedging costs have started to trend higher again but FAB
index little changed as Asia RV improves
Hedging costs for EUR investors were pretty stable in 1Q24 but have since risen more than
20bps and are now near a 6m high at 1.7%. This has been driven primarily by the ECB which
has begun cutting rates, leading towards greater monetary policy divergence versus the Fed.
The FOMC meeting this week should give some indication on the Fed’s latest thinking on
timing for a first rate cut which will in turn be important for the future trend of EUR hedging
costs.
Figure 107: FX hedging costs for Euro based investors in USD assets have turned higher
3.5% USDEUR 3m fwd hedging cost
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Jan-24 May-24
Post the ECB’s rate cut and the strong US NFP report which caused markets to price the Fed
on hold for longer, the expected difference between policy rates for two markets in Sep’24
is now 1.7%. At the end of 1Q this difference was 1.5%. Looking further out to YE the policy
gap is expected to narrow again, with the market pricing 1.8 cuts in Europe and 1.5 cuts in
the US, and thus the rate difference coming down to 1.6%.
Figure 108: Markets expects ECB & Fed policy to reconverge by YE, which would be supportive of lower
hedging costs
Fed vs ECB Rate Path: Implied Rate Difference
Now 1Q24
1.7
1.6
1.5
1.4
Mar-24 Jun-24 Jul-24 Sep-24 Nov-24 Dec-24
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JPMORGAN
14 June 2024
The implications of this for Eurozone demand for USD credit are that: a) this is marginal
move so far in the context of the large drop since early 2023 (see chart above) and b) there
is still a decent chance this will reverse course in the coming months and EURUSD hedging
costs will decline anew. Thus, its too early to say that demand from the Eurozone for USD
credit is set to slow, in our view, but it is certainly a growing risk. This is especially true given
that EUR HG credit is currently not offering much relative value either with EUR HG
spreads at their tightest in over 2 years. This leaves EUR HG just 13bp cheap to USD HG
currently on a hedged basis (see Figure 5 on page 2 of our Foreign demand monitor). On a
related note, expectations have remained more or less unchanged since the end of Q1 for the
path of the Fed versus the BoJ which in turn have left JPY hedging costs very stable at around
5.7%, still very high but at the lower end of its 6m range.
Figure 109: Markets still expecting significant convergence between BoJ and Fed
Fed vs BoJ Rate Path: Implied Rate Difference
5.5
Jun-24 Jul-24 Sep-24 Now
Nov-24 1Q24
Dec-24
5.0
4.5
4.0
Mar-24 Jun-24 Jul-24 Sep-24 Nov-24 Dec-24
New Fed and Rates forecasts but no change to spread forecast

At the end of May, spreads hit a post-GFC tight of 99bp and then four days later a 6-week
wide of 104bp, before rebounding by 2bp on Friday to close at 102bp. After 5 weeks of very
little spread movement, last week was a reminder that volatility can come back quickly. It
was also a reminder that HG bond spreads do have vulnerability to a decline in yields, at least
in the short term, as the 5bp of spread widening intra-week was driven by a 27bp move lower
in the JULI yield in the 6 trading days between May 30th and June 6th. In this 5-day period
CDX was slightly tighter and stocks were higher – highlighting that the drivers of the spread
weakness were specific to the bond market (lower yields and active issuance). On Friday,
the narrative changed again with a very strong NFP report. This caused JPM to now forecast
only one Fed cut this year, in November, from 3 previously (see here). This is in line with
revised market consensus. In response, our rates research colleagues pushed up their expec-
tation for YE rates, with the 10yr yield now expected to end 2024 at 4.40%, near the current
level, from 4.00% previously (see here). If our 95bp spread forecast and the new rates curve
forecasts prove correct HG bonds will have a total return from now to YE of 3.1% and a full
year total return of 3.5% (down from 6% under our previously UST curve forecast).
These higher UST yield curve expectations are, in our view, supportive of tighter spreads
and do not compel us to revise our spread forecast. The rebound in fund flows last Thursday
to a 2-month high is supportive of this, and the jump in US yields on Friday will improve
the attractiveness of HG credit to overseas investors as well. ‘Higher for longer’ has been
good for spreads all year and we do not believe that changed last week. Along these lines,
we did however lower our HY spread forecast by 45bp to 380bp (Friday’s close was 346bp)
as we continue to expect HY yields to end 2024 at 8.0% (similar to Friday’s 8.1% close) so
a higher UST yield forecast leads to lower spread expectations to maintain the same yield
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JPMORGAN
14 June 2024
(see here).
5yr demand stronger WoW leading to flatter 3s5s and steeper

5s10s curve
Spreads widened modestly as yields rose 7-8bp across tenors WoW. Spread curves flattened
in the short end while they steepened in the intermediate part of the curve over the week.
3s5s at 16.4bp is the flattest since mid-April while 5s10s steepened to 31.6bp, close to its
highs since Oct’23. 10s30s was about unchanged at 19.1bp and now stands at 75% of its 3m
range.
The 3s5s curve flattened by 1.1bp WoW and MoM to 16.4bp. The 3s5s issuer curves for F
(+12bp WoW) and ENTERP (+10bp WoW) steepened the most while CNXC (-16bp WoW)
and R (-14bp WoW) flattened the most WoW. Currently, PCAR (+26bp, 100%) and CAT
(+20bp, 100%) are at the steepest level while LLY (+6bp, 0%) and MCD (+10bp, 0%) are
at the flattest level in their 6m range.
The 5s10s curve steepened by 1.2bp WoW and 2bp MoM to 31.6bp. The 5s10s issuer curves
for CNXC (+14bp WoW) and SO (+12bp WoW) steepened the most while LKQ (-10bp
WoW) and ADBE (-10bp WoW) flattened the most WoW. Currently, HUM (+45bp, 100%)
and PYPL (+40bp, 99%) are at the steepest level while BA (+19bp, 0%) and NEM (+15bp,
2%) are at the flattest level in their 6m range.The 10s30s curve flattened by 0.2bp WoW
while it steepened by 0.2bp MoM to 19.1bp.
The 10s30s issuer curves for ED (+10bp WoW) and OVV (+9bp WoW) steepened the most
while CPGX (-12bp WoW) and HD (-9bp WoW) flattened the most WoW. Currently, META
(+38bp, 86%) and INTU (+19bp, 84%) are at the steepest level while CMCSA (+19bp, 0%)
and PYPL (+17bp, 1%) are at the flattest level in their 6m range.
Figure 110: JULI Non-Fins 3s5s curve Figure 111: JULI Non-Fins 5s10s curve Figure 112: JULI Non-Fins 10s30s curve
30 30 bp JULI Non-Fins 10s30s

bp JULI Non-Fins 3s5s bp JULI Non-Fins 5s10s
42 Current
Current Current
25 25
37
31.6 19.1
20 20
16.4 32
15 15
27
10 22 10
Jun-23 Sep-23 Dec-23 Mar-24 Jun-24 Jun-23 Sep-23 Dec-23 Mar-24 Jun-24 Jun-23 Sep-23 Dec-23 Mar-24 Jun-24
Source: J.P. Morgan. Source: J.P. Morgan. Source: J.P. Morgan
Spread Strategy Spotlight: The song remains the same

The global spread strategy team published the Spread Strategy Spotlight: The song
remains the same this week:
Spreads are a bit wider here and a bit tighter there, but, overall, the nuances and narra-
tives remain little changed across the global credit complex. Optically, spreads are thin,
though maybe not quite as thin as they first appear adjusted for quality and ongoing benign
default risk. (Note that we have respectively revised down and up our 2024 US High Yield
and Leveraged Loan default rate forecasts to 2.00% and 3.75% this past week). What keeps
the show on the road, of course, is that all-in yields remain in place, which continues to
90
JPMORGAN
14 June 2024
garner the support of the institutional investor base, making lower yields a bigger market
risk than higher yields. As for the direction of travel of underlying bond yields, we continue
to lean on Jay Barry, our Treasury Market Strategist. In a world where we think the Fed now
cuts rates just once this year – in November – we think Treasuries will trade with 0.5-2.5
of embedded cuts between now and year end, with 10-year yields circa 4.40% repre-
senting the mid-point of that range.
Figure 113: Capital market access is broadening with B3 or lower-rated Figure 114: ...in part, this reflects the record pace of CLO origination
bond and loan issuance rising to a three-year high... though we see limited room for further liability spread compression
225 Rolling 6 month Net New Issuance ($bn)
150 HY bonds Lev Loans Lev Loans HY Bonds CLO
B3 or lower-rated issuance ($bn)
200
175
150
100
125
100
50 75
50
25
0 0
Jan 99 Jan 02 Jan 05 Jan 08 Jan 11 Jan 14 Jan 17 Jan 20 Jan 23
1Q20
2Q21
3Q21
4Q21
1Q22
2Q22
2Q23
3Q23
4Q23
1Q24
2Q24
2Q20
3Q20
4Q20
1Q21
3Q22
4Q22
1Q23
Figure 115: Distressed exchanges YTD total $21.7bn, which already Figure 116: A handful of originally AAA-rated SASB CMBS bonds
ranks as the third highest annual total on record levered to stagnating secular CRE stories are trading at distressed
levels, implying deep losses hitting these deals
40 36.4 High-yield bond distressed exchanges
110
35 Leveraged loan distressed exchanges 100
Distressed exchange volume
30 27.7 90
Price ($)
25 80
20.3 21.4 21.7
20
($bn)
Manhattan Office
15.3 70 Regional Mall
Manhattan Office
15 11.8 Portfolio
60
10 9.2 7.8 DTLA Office
Floating
4.9 4.1 50
5 3.0 2.6 3.5 Fixed
0.9 0.0 1.0 40 SF Office SF Super Regional Mall
0
0 2 4 6 8 10 12
YTD
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
WAL (years)
Source: J.P. Morgan, PitchBook Data Inc., Bloomberg Finance L.P., S&P, IHS Markit Source: J.P. Morgan, Pricing Direct. Note: Price ($) versus WAL (yrs) for the 392 originally AAA-
rated or split rated AAA-rated SASB bonds that constitute SASB Index
This report was excerpted from Credit Market Outlook & Strategy: The macro backdrop is
supportive but lower yields may be a near term headwind to already tight spreads, Eric Bein-
stein, June 14, 2024.
91
Nelson Jantzen, CFA AC (1-212) 270-1169 North America Fixed Income
nelson.r.jantzen@jpmorgan.com Strategy
JPMORGAN
Tony Linares (1-212) 270-3285 14 June 2024
tony.linares@jpmorgan.com
High Yield
• High-yield bond spreads widened 9bp off the intra-week low as investors absorbed a
very benign US CPI report, political turmoil in France, a rise in jobless claims to a high
since August, and Fed DOTS which support a view of delayed but not necessarily shal-
lower easing cycle. Retail inflows also moderated following a 7-week stretch of inflows
amounting to $7bn. And capital market activity totaling $2.4bn was the lightest since
January following the most active stretch since late 2021. HY bond spreads (353bp)
are now 18bp above early May’s post GFC low, whereas yields (7.96%) rose 3bp
off an intra-week low since April alongside falling rates. High-yield bonds are up
+0.9% in June and+2.9% YTD. The current LTM HY bond recovery rate including
distressed exchanges is 48.3%, versus 35.3% excluding distressed transactions.
• Loan prices and yields declined $0.12 and 5bp over the past week, respectively, as a
softer CPI fueled a decline in the forward curve. And the % trading above Par (57%) is
now 7% off its high. For context, repricing activity totaling $195bn in 2Q is already
the most active quarter on record. And 22% of the loan market has repriced in 2024
which compares to as much as 45% in 2017. Leveraged loans are up +0.3% in June
which has YTD gains at +4.6%. The current LTM Loan recovery rate including dis-
tressed exchanges is 51.5%, versus 42.0% excluding distressed transactions.
• This week we published 1Q24 High-Yield Credit Fundamentals. Balance sheets for US
HY issuers are in a strong state heading into what could be a more challenging funda-
mental landscape in 2H24. In aggregate, HY corporates delivered a solid quarter
with an elevated level of earnings beats and generally positive guidance. That said
a review of 1Q24 unveiled modest erosion in credit metrics. Specifically, EBITDA
declined on a y/y basis (-0.3%) for only the second time since 2020. On a y/y basis,
BBs experienced EBITDA growth (+1.5%) versus contractions for Bs (-3.5%) and
CCCs (-1.5%). And the strongest gains were in Gaming/Leisure and Tech whereas the
largest declines were in Chemicals, Services, and Telecom. Meanwhile, leverage for
US HY issuers increased 0.05x q/q to 3.98x versus 5.92x in 1Q21. Leverage is now
0.22x off 1Q23’s record low albeit still well below the historical average of 4.31x.
Leverage for BB, B, and CCC-rated companies is 3.3x, a 18yr low 4.5x, and 6.8x which
compares to a decade average of 3.5x, 5.0x, and 7.6x, respectively. Meanwhile, LTM
interest expense has risen by double-digits in each of the past 4 quarters which has
caused coverage ratios to dip below 5x for the first time since 4Q21. That said interest
coverage metrics, which decreased -0.11x to 4.89x, are still above the long-term
average (4.48x). In a separate analysis (no history yet), we added 98 additional private
HY companies which caused leverage to rise to 4.19x and coverage to decline to 4.25x.
Additionally, 20% of HY issuers have a coverage ratio below 2x which is still well below
the 47% of loan issuers.
Credit Strategy Weekly Update

High-yield bond spreads widened 9bp off the intra-week low this week as investors
absorbed a steep decline in Treasury yields, political turmoil in France (French election: The
constraints around a Le Pen government), a very benign US CPI report (recap), a rise in
jobless claims to a high since August, and Fed DOTS which support a view of delayed but
not necessarily shallower easing cycle (FOMC guesses at fewer cuts in ’24). Retail inflows
also moderated to only $10mn following a 7-week stretch of inflows amounting to $7bn.
And capital market activity was the lightest since January following the most active stretch
since late 2021.High-yield bond yields and spreads decreased 5bp and 1bp over the past
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JPMORGAN
week to 7.96% and 353bp, which are 15bp higher and 24bp lower year-to-date, respec-
tively. Notably, yields are 3bp off the intra-week low since April and spreads are 18bp
above May’s 6th’s post-GFC low. Meanwhile, four deals priced this week for $2.4bn
which has month-to-date issuance at $10.9bn ($1.7bn ex-refi). And high yield issuance
totaled $33.6bn ($5.8bn ex-refi) in May.HY new-issue volume totaling $158.5bn
($29.1bn non-refi) year-to-date compares with $86.4bn ($31.2bn ex-refi) of issuance
YTD23.
High-yield bond yields are at our year-end target of 7.95%

10.00% 650 bp
High-Yield STW: 353bp
9.00% LTM Low/High: 335bp / 474bp 600 bp
High-Yield YTW: 7.96%

550 bp
8.00% LTM Low/High: 7.80% / 9.62%
Spread to worst (bp)

Yield to worst (%)
500 bp
7.00%
450 bp
6.00%
400 bp
5.00% JPM HY Bond Index (YTW)
350 bp
JPM HY Bond Index (STW)
4.00% 300 bp
3.00% 250 bp
Apr-21
Jul-21
Oct-21
Apr-22
Jul-22
Oct-22
Nov-22
Dec-22
Apr-23
Jul-23
Oct-23
Nov-23
Dec-23
Apr-24
May-23
May-24
Feb-21
Nov-21
Dec-21
May-22
May-21
Aug-21
Sep-21
Feb-22
Aug-22
Sep-22
Feb-23
Aug-23
Sep-23
Feb-24
Jan-21
Mar-21
Jun-21
Jan-22
Mar-22
Jun-22
Jan-23
Mar-23
Jun-23
Jan-24
Mar-24
Jun-24
By rating, BB bond yields are now 6.58% (-3bp w/w, +17bp YTD), B yields are 7.76% (-4bp
w/w, +4bp YTD), and CCC yields are 13.09% (-1bp w/w, +30bp YTD). BB spreads are now
215bp (+0bp w/w, -23bp YTD), which are 15bp above their post-GFC low, B spreads are
332bp (+0bp w/w, -35bp YTD), which are 19bp above their low since 2007, and CCC
spreads are 876bp (+5bp w/w, +3bp YTD), which are now 78bp above mid-March’s tights.
HY/IG spreads of 262bp (+0bp w/w, -10bp YTD) are now 17bp above their low since the
beginning of 2022 and are 20bp below their 12M average, while BBB/BB spreads of 102bp
(+1bp w/w, -7bp YTD) are 14bp below the 12M average and 11bp above their low since
April 2019. Notably both HY/IG and BBB/BB spreads are 1bp below their 6-week
highs. The HY Bond Index is providing a gain of +0.92% in June with CCCs (+1.31%)
outperforming BBs (+0.90%) and Single Bs (+0.84%). Andthe HY index is providing a
+2.86% gain in 2024 with CCCs (+4.33%) outperforming Single Bs (+2.82%) and BBs
(+2.44%). Industries outperforming in 2024 include Automotive (+6.82%) and Healthcare
(+5.75%) and underperforming are Cable/Sat (-3.86%) and Telecom (-1.93%).
BB/BBB spreads widened to a six-week high over the past week

HY BB/ HY B/ HY B/ HY CCC/
HY LL IG BBB HY BB HY B HY CCC LL BB LL B1/B2 LL B3 LL CCC HY/LL HY/IG BB/BBB LL BB LL B1/B2 LL B3 LL CCC
Current 353bp 459bp 92bp 113bp 215bp 332bp 876bp 275bp 407bp 589bp 1194bp -106bp 262bp 102bp -59bp -75bp -257bp -319bp
12M High 474bp 551bp 142bp 175bp 324bp 487bp 1025bp 324bp 514bp 804bp 1470bp -60bp 338bp 159bp 10bp 9bp -234bp -315bp
12M Low 335bp 457bp 87bp 109bp 201bp 314bp 798bp 272bp 405bp 583bp 1189bp -143bp 245bp 91bp -80bp -116bp -342bp -528bp
1 Yr Average 393bp 503bp 112bp 138bp 254bp 390bp 888bp 299bp 452bp 674bp 1327bp -110bp 282bp 116bp -46bp -63bp -284bp -439bp
5 Yr Average 453bp 497bp 125bp 156bp 307bp 471bp 917bp 312bp 471bp 662bp 1269bp -44bp 328bp 151bp -5bp 0bp -192bp -352bp
10 Yr Average 461bp 469bp 127bp 160bp 305bp 464bp 895bp 315bp 458bp 679bp 1291bp -8bp 334bp 145bp -10bp 6bp -215bp -396bp
15 Yr Average 507bp 495bp 141bp 176bp 339bp 499bp 907bp 334bp 485bp 695bp 1245bp 11bp 366bp 163bp 5bp 14bp -196bp -338bp
US Recession Avg. 971bp 805bp 252bp 413bp 568bp 901bp 1977bp 554bp 859bp 1145bp 1605bp 234bp 697bp 258bp 116bp 94bp -191bp 37bp
US Non Recession Avg. 500bp 474bp 117bp 172bp 321bp 498bp 964bp 324bp 465bp 657bp 1177bp 13bp 352bp 157bp 2bp 16bp -176bp -309bp
Post GFC Low 335bp 372bp 85bp 105bp 201bp 314bp 557bp 260bp 381bp 469bp 645bp -143bp 227bp 81bp -80bp -116bp -557bp -1032bp
All Time Low 251bp 222bp 75bp 99bp 159bp 228bp 398bp 188bp 236bp 240bp 273bp -143bp 163bp 22bp -80bp -117bp -812bp -1032bp
Leveraged loan prices and yields declined $0.12 and 5bp over the past week, respec-
tively, as a softer CPI, rise in jobless claims, coupled with political turmoil in France
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JPMORGAN
fueled a decline in the forward curve. And the % of leveraged loans trading above Par
(57%) is now 7% off its high and at a 1-month low. For context, repricing activity totaling
$195bn in 2Q is already the most active quarter on record. And 22% of the loan market
has repriced in 2024 which compares to as much as 45% in 2017 and an average of 15%
since 2012. Leveraged loan prices decreased $0.12 over the past week to $97.35 with
Ba1/Ba2/Ba3 prices declining $0.14 to $99.81, B1 prices decreasing $0.13 to $99.36, B2
prices falling $0.16 to $98.79, B3 prices decreasing $0.05 to $96.17, and Caa1/Caa2/Caa3
prices increasing $0.30 to $82.05. Leveraged loan yields and spreads (to maturity)
decreased -5bp and increased +2bp over the past week to 8.62% and 459bp, which are
2bp higher and 41bp lower year-to-date. Loan yields are at their low since February while
spreads are only 2bp above their low since May 2022. Meanwhile, the sub-$80, $80-$89.99,
$90-$94.99, $95-$97.99, $98-$98.99, $99-$99.99, and $100+ buckets for Loans are now at
3.06%, 3.67%, 4.07%, 7.11%, 5.074%, 20.15%, and 56.87%. The yield-to-maturity for the
leveraged loan index of 8.62% is now 66bp above the HY bond index (7.96%), which is
comparable to an average 76bp above over the past year. Notably, this is the narrowest gap
between HY and Loan yields since January 5th. By rating, BB, B and CCC loan spreads of
275bp (+2bp w/w, -22bp YTD), 432bp (+3bp w/w, -23bp YTD), and 1194bp (+2bp w/w,
-143bp YTD) are now 16% below, 13% below, and 2% above their long-term non-reces-
sionary averages.
A record $195bn of loans have repriced in 2Q

120 90%
Repricing ($bn)
% Leveraged Loans Trading Above Par 80%

100
Institutional Loan Repricing Volume ($bn)
70%
% of Loans Trading above Par

80 60%
50%
60
40%
40 30%
20%
20
10%
0 0%
Jan-13
Jul-13
Jul-14
Jan-15
Jul-16
Jan-17
Jan-18
Jul-18
Jan-20
Jul-20
Jan-22
Jul-22
Jul-23
Jan-24
Jan-12
Apr-12
Jul-12
Oct-12
Apr-13
Oct-13
Jan-14
Apr-14
Oct-14
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Oct-16
Apr-17
Jul-17
Oct-17
Apr-18
Oct-18
Jan-19
Apr-19
Jul-19
Oct-19
Apr-20
Oct-20
Jan-21
Apr-21
Jul-21
Oct-21
Apr-22
Oct-22
Jan-23
Apr-23
Oct-23
Apr-24
Source: J.P. Morgan; S&P/IHS Markit
The Leverage Loan index is providing a +0.30% gain in June which is underperform-
ing the HY index by the most since December (-61bp).The Leveraged Loan index is
providing a +4.60% gain in 2024. YTD, Moody’s rated BB, B1, B2, B3, and CCC-rated
loans are returning +3.74%, +4.30%, +4.30%, +4.62%, and +10.04%, respectively.
Industries outperforming in 2024 include Healthcare (+6.03%) and Utility (+5.75%) and
underperforming are Broadcasting (-0.51%) and Cable/Sat (+1.84%).Meanwhile, CLO
volume totals $16.5bn in June ($6.5bn ex-refi/resets) and totals $94.1bn ex-refi/resets in
2024 ($181.0bn gross). Meanwhile, 30 deals for $25.6bn priced yesterday which increased
month-to-date issuance to $81.4bn ($4.3bn ex refi/resets). May’s institutional loan issuance
totaled $163.0bn ($11.5bn ex-refi/repricing) which was the most active month on record.
As such, year-to-date, institutional loan issuance totals $634.4bn which includes
$348bn of repricing (55%), $223bn of refinancing (35%), and $64bn of non-refi/
repricing (10%).
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JPMORGAN
The leveraged loan asset class surrendered some of its outperformance over the past week with markets
now pricing in two cuts 2024
116
Loans S&P 500: +14.65%
114
112 HY Bonds
110 HG Bonds
108
S&P 500
106 Loans: +4.60%
104
HY Bonds: +2.86%
102
100
98 HG Bonds: +0.72%
96
05 Jan
12 Jan
19 Jan
26 Jan
01 Mar
08 Mar
15 Mar
22 Mar
29 Mar
05 Apr
12 Apr
19 Apr
26 Apr
07 Jun
03 May
10 May
17 May
24 May
31 May
29 Dec
02 Feb
09 Feb
16 Feb
23 Feb
Source: J.P. Morgan; S&P/IHS Markit
This report was excerpted from, Credit Strategy Weekly Update, Nelson Jantzen, June 14th,
2024
95
Peter DeGroot AC (1-212) 834-7293 Roisin A Gargan (1-212) 834-7010 North America Fixed Income
peter.degroot@jpmorgan.com roisin.gargan@jpmchase.com Strategy
JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
ye.tian@jpmorgan.com
Municipal Markets Weekly

AMT and housing bonds, Mutual fund holdings, 1Q24 Fed
Flow of Funds, Sector outlooks
• The full set of May inflation data surprised to the downside. Meanwhile, Chair Powell
managed to temper expectations for interest rate cuts this year to just one, while
conveying a positive outlook that conditions for lower rates are gradually materializing.
Initial claims jumped, sending a conflicting signal from last week’s strong jobs report.
• With the first Fed cut still months away, yields at multi-month lows, OAT/bund
spreads priced for a more negative outcome, and next week’s retail sales likely to
show a healthy bounce, our rates team turn tactically bearish in the 5yr sector. And
even though the current environment still supports carry-seeking behavior, they take
profits on 3s/5s/7s belly-richening butterflies, as the risk adjusted-carry is low and the
5yr sector is near the richest levels on the fly YTD.
• This week, HG municipals rallied by 11-12-13-10bps in 2-5-10-30yrs, respectively, but
still lagged Treasuries by 7-10-8-9bps, with UST rates lower by 18-22bps.
• After this underperformance, ratios have returned to more tradable levels last seen at the
end of May. Next week’s tax-exempt supply is slightly above trend at ~$7.7bn, but like
this week, is subject to late adds to the calendar, and again will be compressed into just
four days. We expect that ETF inflows will be essential to digest next week’s calen-
dar smoothly.
• We continue to like current absolute and relative yields vs. those expected in peak
summer reinvestment months, and favor discount and off-the-run structures.
• LSEG reported weekly muni inflows of $154mn (-$105mn open-end funds/+$259mn
ETFs). YTD inflows total $11.8bn (+$9.5bn open-end funds/+$2.3bn ETFs).
• AMT spreads reacted to the record open-end fund inflows in 2021: airport AMT vs.
non-AMT spread hit post TCJA lows of 17bps. And in 2022, AMT spreads hit a multi-
year wide of 50bps amidst record outflows. Corporate based and other buyers who are
not substantially impacted by AMT, can enjoy ~50bps of spread on AA AMT airport
bonds vs. non-AMT airports, while awaiting open-end fund inflows to tighten the sector.
• Analysis of fund holdings shows managers largely allocate duration and coupon in line
with their indices, with some variation by rating and sector. IG funds currently hold ~6%
AMT bonds, in line with the index. HY funds are holding 14% AMT bonds (vs. 9%
HY index). IG fund managers have allocated more capital in the steepest 11-20yr
part vs. the IG muni index (35% vs. 32%), and slightly less in overvalued 6-10yr
bonds (20% vs. 22% index). IG funds are also overweight in A and BBB rated bonds vs.
the index.
• HY fund holdings lean toward longer durations, similar to the composition of the HY
muni index, but we see some overweighting in the 11-20yr part of the curve. HY tobacco
and transportation sectors are the top sector overweights.
• The $4.08tn muni market expanded by 0.6% q/q to +1.0%oya in 1Q24. Holdings
subject to individual tax rates increased by 0.4% q/q (4.4% y/y) while holdings subject
to corp tax rates declined 2.9% q/q (8.9% y/y).
• Continued strength in the labor market, broadly favorable consumer fundamentals, and
stabilization in the housing market so far in 2024 generally point to continued stable
credit conditions in our market. In this context and in advance of our upcoming Mid-
Year Outlook publication, herein we provide a compilation of our sector work.
96
JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
Tax-exempts lagged heading into another shortened week with

slightly above trend supply. Investors may find value in flash
UST market selloffs as ETF liquidity remains essential amidst
still heavy secondary balances
The AAA HG muni scale was bumped by 4bps in the 1yr spot, 3bps in 2-3yrs, and 4bps in
4yrs and out on Friday, while Treasury yields were unchanged in the front end and lower
by 2-5bps in the 10-30yr spots, respectively. Over the week, HG municipals rallied by
11-12-13-10bps in 2-5-10-30yrs, respectively, but still underperformed Treasuries by
7-10-8-9bps, with UST rates lower by 18-22bps across the curve.
After this week’s underperformance, ratios are at more tradable levels, similar to the end of
May. Next week’s tax-exempt supply shows as a manageable ~$7.7bn, but like this week,
is subject to late adds to the calendar, and again will be compressed into just four days. We
continue to believe that current absolute and relative yields are attractive versus those
that will be available in peak summer reinvestment months, and like discount and off-
the-run structures.
Figure 117: HG muni yields declined by 11-13bps this week, but still lagged the rally in Treasuries by
7-10bps across the curve
WTD yield change, bps
HG Muni AA Tax Muni AA Corp UST
0
-5
-10
-10
-11
-12
-15 -14 -13
-15
-17
-20 -18 -19 -18 -18
-20 -20 -19
-21
-22
-25
2yr 5yr 10yr 30yr
Source: Refinitiv, ICE, J.P. Morgan.

Note: As of 6/14/2024, 3pm read. Assumes taxable muni and corporates spread unchanged on Friday.
Base rates in the municipal market could not keep pace with this rally in the UST market
this week. Month-to-date, AAA HG muni yields have rallied 27-30bps (curve roll + mar-
ket move), and are outperforming UST by 10-2bps in 2yrs and 10yrs , respectively, but
are lagging by 1-3bps elsewhere on the curve. Even after this week’s rally, absolute yields
look attractive in the context of the trading range over the past three years, May’s underper-
formance versus taxable fixed-income, and our longer-term projections for lower rates this
year.
97
JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
3-year YIELD range Historical Averages

Current WTD Chg MTD Chg 3y Min Curent Last Month End 1yr range 3y Max z-score 1yr Avg 3yr Avg 5yr Avg 10yr Avg 20yr Avg 30yr Avg
2yr 3.05 -11 -30 0.05 3.70 0.9 3.03 2.09 1.48 1.24 1.41 2.06
5yr 2.85 -12 -29 0.34 3.51 0.9 2.75 2.08 1.52 1.48 1.83 2.53
HG Yield (%) 10yr 2.79 -13 -32 0.81 3.61 0.7 2.76 2.27 1.81 1.94 2.50 3.17
20yr 3.41 -10 -27 1.12 4.33 0.7 3.52 2.83 2.34 2.52 3.20 3.88
30yr 3.69 -10 -27 1.32 4.57 0.8 3.80 3.05 2.54 2.71 3.44 4.08
2yr 4.69 -18 -20 0.17 5.22 0.8 4.77 3.29 2.25 1.80 1.86 2.83
5yr 4.23 -22 -30 0.65 4.96 0.8 4.32 3.18 2.25 2.07 2.35 3.31
UST Yield (%) 10yr 4.22 -21 -30 1.17 4.99 0.9 4.28 3.21 2.43 2.38 2.90 3.80
20yr 4.46 -18 -27 1.73 5.33 0.9 4.56 3.56 2.82 2.73 3.37 4.29
30yr 4.35 -20 -30 1.67 5.10 1.0 4.41 3.43 2.82 2.86 3.50 4.33
2yr 4.97 -15 -16 0.32 5.65 0.8 5.10 3.61 2.58 2.18
5yr 4.66 -18 -22 1.00 5.55 0.7 4.79 3.67 2.78 2.65
AA Corp Yield
10yr 4.81 -15 -18 1.70 5.68 0.8 4.88 3.89 3.16 3.17
(%)
20yr 5.16 -13 -17 2.50 6.08 0.8 5.24 4.39 3.73 3.74
30yr 5.08 -15 -23 2.64 5.83 0.9 5.09 4.32 3.81 3.98
2yr 4.95 -14 -18 0.46 5.61 0.7 5.16 3.65 2.69 2.22
AA Taxable 5yr 4.65 -18 -25 1.00 5.61 0.6 4.94 3.78 2.91 2.67
Muni Yield 10yr 4.86 -17 -23 1.58 5.89 0.6 5.11 4.05 3.28 3.26
(%) 20yr 5.23 -14 -24 2.42 6.30 0.6 5.49 4.58 3.90 3.93
30yr 5.14 -14 -26 2.54 6.17 0.6 5.36 4.53 3.92 4.01
Source: Refinitiv, ICE, J.P. Morgan.

Note: HG muni and UST yields as of 3pm 06/14/2024, other data as of 06/13/2024
2-5-10-30yr IG municipal ratios cheapened versus taxable fixed-income in May and have
richened by 0-3% thus far in June. Ratios have reset the most in 2-10yrs on the curve, and
value is still most apparent in the longest portion of the tax-exempt market, with ratios
on 30yr AA tax-exempts closest to the cheaper end of the range versus taxable munici-
pals. Municipal fund inflows (largely ETF driven) stepped up with the release of better than
expect inflation data. The direction and magnitude of UST rate change will drive the
same in municipal fund flows going forward.
3-year RATIO range Historical Averages

Curent Last Month End 1yr range
Current WTD Chg MTD Chg 3y Min 3y Max z-score 1yr Avg 3yr Avg 5yr Avg 10yr Avg 20yr Avg 30yr Avg
Richer Cheaper
2yr 65.1% +0.2% -3.4% 24.9% 90.8% 0.4 63.4% 61.0% 84.8% 81.1% 89.2% 83.7%
5yr 67.4% +0.7% -2.0% 43.9% 92.1% 0.5 63.4% 63.8% 75.6% 76.4% 81.9% 80.0%
AAA HG/UST
10yr 66.2% +0.2% -2.7% 56.4% 105.2% -0.5 64.3% 71.8% 82.2% 86.0% 89.0% 86.5%
Ratio (%)
20yr 76.5% +0.8% -1.3% 57.0% 99.6% -0.3 77.1% 78.9% 86.9% 94.9% 97.0% 93.4%
30yr 84.8% +1.4% -0.4% 63.8% 110.2% -0.4 86.1% 88.3% 92.2% 95.8% 98.7% 95.8%
2yr 65.2% +0.2% -2.3% 19.3% 84.2% 0.7 61.5% 56.4% 52.6% 57.1%
AA TE 5yr 65.9% +0.5% -2.6% 39.6% 81.3% 0.9 59.6% 58.3% 55.1% 60.1%
Muni/Taxable
10yr 61.4% -0.2% -3.1% 48.9% 85.0% 0.0 57.2% 61.7% 61.7% 66.4%
Muni Ratio
(%) 20yr 69.2% -0.4% -1.8% 46.1% 81.8% 0.4 68.6% 66.3% 64.3% 68.7%
30yr 77.6% +0.0% -0.6% 50.5% 87.7% 0.6 77.3% 72.9% 70.5% 73.3%
2yr 65.0% +0.4% -2.7% 24.5% 82.9% 0.7 62.2% 57.7% 61.0% 60.7%
AA TE 5yr 65.6% +0.4% -3.1% 38.7% 81.5% 0.7 61.5% 59.4% 58.8% 60.8%
Muni/Corp 10yr 62.1% -0.5% -3.8% 49.8% 86.1% -0.2 60.0% 63.5% 63.9% 68.0%
Ratio (%) 20yr 70.1% -0.5% -2.6% 44.8% 84.0% 0.1 71.8% 69.0% 67.3% 72.3%
30yr 78.4% +0.3% -1.1% 47.8% 91.4% 0.2 81.6% 76.3% 72.3% 73.9%
Source: Refinitiv, ICE, J.P. Morgan. Note: conditional formatting is based on current value and historical averages. Red indicates rich and green
indicates cheap
Note: HG/UST ratios as of 3pm 06/14/2024, other data as of 06/13/2024
Based on a 21% tax rate, the taxable equivalent yield for 30yr AA 4% tax-exempts
provides only a15bps of spread pickup over similar structure corporates. 30yr AA tax-
able munis also only offer modest spread versus similar structure US Corporates.
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JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
Figure 118: Based on a 21% tax rate, the taxable equivalent yield for 30yr AA 4% tax-exempts provides
a pick-up over similar structure corporates
Yield, %
6.5 30yr AA Tax Muni (5.14%)
Since TCJA, the corporate tax
rate declined from 35% to 21% 30yr AA Corp (5.08%)
5.5
30yr AA TE 4s TEY (5.24%)
4.5
3.5
2.5
1.5
Jun 19 Dec 19 Jun 20 Dec 20 Jun 21 Dec 21 Jun 22 Dec 22 Jun 23 Dec 23
Spread, bps
150 Spread pickup of 30yr AA TE 4s TEY over 30yr AA Corp
100
50
-50
-100
-150
Jun 19 Dec 19 Jun 20 Dec 20 Jun 21 Dec 21 Jun 22 Dec 22 Jun 23 Dec 23
Source: ICE, J.P. Morgan

Note: As of 06/13/2024
The taxable municipal market spreads to corporates has narrowed considerably in 2024.
30yr AA taxable and A rated taxable munis offer modest spread versus similar structure US
Corporates. The yield on 30yr AA taxable municipals (5.14%)has rallied since October
but remains high relative to most periods over the past ten years.
Figure 119: The yield on 30yr AA taxable municipals has rallied since October, but remains high relative
to most periods over the past ten years
Yield, %
7
AA 30yr TAXABLE MUNI yields have rallied since October, but remain high relative to most
6
periods over the past ten years
2
Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Jun 23
99
JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
Spread, bps
150
30yr AA and A TAXABLE MUNIS offer spread versus similar structure US
CORPORATES AA TAX MUNI sprd to Corps 5bps
100 A TAX MUNI sprd to Corps 17bps
50
0
AA Spread pick up
A Spread pick up
-50
Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 Jun 19 Jun 20 Jun 21 Jun 22 Jun 23
Source: ICE, J.P. Morgan

Note: As of 06/13/2024
Figure 120: Change in benchmark muni yields relative to Treasuries

HG Municipal Yields Treasury Yields HG Muni/Tsy Ratio
Relative
Sector Current (%) 1wk chg (bps) Current (%) 1wk chg (bps) Change Ratio (%) change (% pts)
2yr 3.05 -11 4.69 -18 -7 65 0
5yr 2.85 -12 4.23 -22 -10 67 1
10yr 2.79 -13 4.22 -21 -8 66 0
30yr 3.69 -10 4.35 -19 -9 85 1
Source: Refinitiv, J.P. Morgan

Note: As of 06/14/2024, 3pm read
The full set of May inflation data this week surprised to the down-
side. Meanwhile, the Fed dots showed one cut for this year, down
from three in March
This week’s economic calendar was headlined by Wednesday’s May CPI release, which
surprised to the downside, as did yesterday’s PPI print and today’s import prices
report for the month. Meanwhile, Chair Powell managed to temper expectations for
interest rate cuts this year to just one, while conveying a positive outlook that condi-
tions for lower rates are gradually materializing. We also received a jump in initial
claims, sending a conflicting signal from last week’s strong jobs report, and an unantici-
pated further drop in consumer sentiment, seemingly attributable to angst over inflation
and a persistently higher cost of living post-pandemic.
In terms of the detail, the May CPI report surprised materially to the downside on Wednes-
day, with headline CPI flat on the month (survey: 0.1%) and core up just 0.16% (cons: 0.3%),
the softest monthly reading since August 2021, and taking the oya series down from 3.6%
to 3.4%. The softness came mainly from supercore CPI (core services ex rent) which was
flat on the month (May CPI to put a spring in Powell’s step, Michael Feroli, 6/12/24).
A few hours later, attention was on signals from the updated FOMC projections and Chair
Powell’s press conference. The updated dots were a bit more hawkish than expected,
with the median showing just one cut this year (down from three in March) (FOMC
guesses at fewer cuts in ‘24, Michael Feroli, 6/12/24). That said, a plurality of partici-
pants still expect two cuts. Chair Powell acknowledged that the CPI release represented
a welcome improvement, but stressed that the committee will need to see more “good
data” to gain confidence that inflation is sustainably returning to target (particularly
in light of the hot 1Q readings). He described the labor market as having returned to its
pre-pandemic state, but emphasized that the FOMC will be closely watching for signs of
unexpected weakening. Overall, Powell was careful not to show his hand, likely seeking to
keep a range of easing options on the table without fueling market expectations for Septem-
100
JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
ber (Daily Economic Briefing, Nora Szentivanyi, 6/13/24).
On the heels of the downside surprise in the CPI data, the PPI print for May also came
in softer than expectations. The headline PPI declined by 0.2% in May, a significant slow-
ing relative to the firm 0.5% April gain. The year-ago rate also ticked down to 2.2%, its
softest reading since October (PPI for May much softer than expected, Murat Tasci,
6/13/24). And this morning, May import prices declined more than expected, pointing
to some potential downward pressure on future goods prices. Based on the full set of May
inflation data this week (CPI, PPI, and import prices), our economists are now tracking
0.14% for core PCE inflation in May, with the year-ago pace at 2.6% (May import prices
surprised lower, Michael Hanson, 6/14/24).
In terms of the labor market, initial claims jumped 13k to 242k in the latest weekly read,
marking the highest level since August 2023, although there could be some noise from
the Memorial Day holiday. We are getting some conflicting signals from the labor mar-
ket data, as last week’s jobs report highlighted. However, it is important to keep in mind
that the level of initial claims, through some noise, still hovers around historically low
levels (Jobless claims jump 13,000 post Memorial Day, Murat Tasci, 6/13/24).
Finally, the University of Michigan’s survey of consumer sentiment took an unanticipat-

ed further dive in the preliminary release for June, declining to a seven-month low. This
move is surprising when compared to actual spending behavior, the improving stock
market and still firm labor market, with the crux of the matter seemingly angst over
inflation and a persistently higher cost of living relative to pre-pandemic times (Senti-
ment sours further in preliminary June UMich survey, Michael Hanson, 6/14/24).
Our rates teams’ view: With the first Fed cut still months away, yields at multi-month lows,
OAT/bund spreads priced for a more negative outcome, and next week’s retail sales likely
to show a healthy bounce, our rates team turn tactically bearish in the 5-year sector. They
also take profits on 3s/5s/7s belly-richening butterflies, even though the current environ-
ment still supports carry-seeking behavior, the risk adjusted-carry is low and the 5-year sec-
tor is near the richest levels on the fly YTD.
Tax-exempt supply is expected to come in around $7.7bn over

the holiday shortened week
Tax-exempt supply is expected to come in around $7.7bn over the holiday-shortened
week next week, or 102% of the trailing 5yr average for the equivalent week. Taxable
issuance is expected to total just $387mn, or 16% the average, leaving expected gross issu-
ance around $8.0bn, or 80% the average. As was the case this week, issuance could be biased
higher if Treasuries hold this week’s gains or rally further.
The negotiated calendar is expected to be headlined by a $1.5bn sale for the JFK Airport
Terminal One Project, and a $1.1bn gas prepay deal by the Public Energy Authority of Ken-
tucky.
101
JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
Figure 121: Historical and forecast weekly municipal issuance

Weekly Issuance, $bn’s
24
Tax-Exempt Taxable Holiday Week
21 Forecast
18
15
12
0
May…
May…
May…
Jul 22
Jul 23
Oct 22
Jan 22
Apr 22
Jun 22
Jan 23
Mar 23
Apr 23
Jan 24
Apr 24
Jun 24
Aug 22
Sep 22
Aug 23
Sep 23
Oct 23
Mar 24
Feb 22
Dec 22
Feb 23
Nov 23
Dec 23
Source: IPREO, Bloomberg Finance L.P., J.P. Morgan
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Ye Tian (1-212) 834-3051 14 June 2024
For the period ending 6/12/2024, LSEG Lipper reported net week-
ly inflows of $154mn
LSEG Lipper reported weekly municipal fund inflows of $154mn for the period end-
ing June 12, driven entirely by ETFs (+$259mn), with outflows from open-end funds
(-$105mn). In terms of duration, inflows were driven entirely by Long Term funds
(+$272mn), with muted outflows from Intermediate Funds (-$19mn), Short/Intermediate
(-$84mn) and Short Term funds (-$15mn). By credit quality, High Yield funds saw inflows
(+$202mn) while Investment Grade funds saw outflows (-$47mn).
Weekly Only Reporters Fund Flows ($mn)

Open-end
Week ended June 12, 2024 Total ETF Funds
Funds
All term muni 154 (105) 259
Investment Grade (47) (240) 193
High Yield 202 135 66
Long Term (10yr+) 272 24 248
Intermediate (5-10yr) (19) (58) 39
Short / Intermediate (3-5yr) (84) (24) (60)
Short (1-3yr) (15) (48) 33
National funds 203 (43) 246
New York (20) (23) 2
California 2 (10) 11
Tax-exempt money market (1,646)
Taxable money market 21,917
Taxable Fixed Income 5,802 (1,033) 6,835
US & Global Equity (19,794) (5,064) (14,730)
Source: LSEG Lipper Global Fund Flows, J.P. Morgan. Note: Figures shown on this table are weekly reporters only. Data refreshed on 6/13/24,
2pm read.
With not all funds reporting yet, inflows for the full month of May are tracking around
$754mn (+$106mn open-end funds/+$648mn ETFs). Year-to-date inflows now total
$11.8bn (+$9.5bn open-end funds/+$2.3bn ETFs), according to LSEG Lipper.
Year-to-date, by duration, Long Term (+$14.0bn) and Intermediate funds (+$1.4bn)

posted inflows, while Short/Intermediate (-$1.4bn) and Short Term funds (-$2.2bn) show
outflows. By credit quality, both Investment Grade (+$5.0bn) and High Yield funds
(+$6.8bn) have posted inflows. Please see our Municipal Weekly Fund Flows Update for
additional detail.
Weekly and Monthly Reporters May Monthly Flow $mn YTD Flow $mn
Open End Open End
Combined ETF Combined ETF
Mutual Fund Mutual
All term muni 754 106 648 11,808 9,537 2,271
Investment Grade (554) (1,133) 579 4,979 2,663 2,316
High Yield 1,308 1,238 70 6,829 6,875 (45)
Long Term (10yr+) 1,090 658 432 14,009 12,305 1,704
Intermediate (5-10yr) 2 (202) 205 1,369 433 936
Short / Intermediate (3-5yr) (188) (182) (7) (1,354) (877) (477)
Short (1-3yr) (150) (169) 19 (2,216) (2,324) 108
National funds 965 434 531 10,657 8,838 1,820
New York (64) (87) 22 221 135 87
California 172 77 95 1,507 1,142 365
Source: LSEG Lipper Global Fund Flows, J.P. Morgan. Note: Figures shown on this table are combination of weekly and monthly reporters.
Figures are as reported on 6/13/24 at 2pm, and will evolve as more month-end data is reported.
This week’s BAB ERP activity

We observed the following BAB ERP activity this week:
• Following an earlier voluntary notice, Burbank CA Water and Power posted a condition-
al call notice for $50.5mn of Electric Revenue BABs (across two CUSIPs), with a
redemption date of 7/12/24. Redemption prices were also provided.
• Following an earlier voluntary notice, Burbank CA Water and Power posted a condition-
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JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
al call notice for $26mn of Water Revenue BABs (across three CUSIPs), with a redemp-
tion date of 7/11/24. Redemption prices were also provided.
• Following an earlier voluntary notice, Irvine Ranch Water District, CA posted a condi-
tional call notice for CUSIP 4636324P1 ($175mn), with a redemption date of 7/12/24.
In 2024 alone, we have identified 29 unique issuers that have either called BABs (15 issu-
ers, affecting $8.3bn of debt), posted conditional calls (7 issuers, set to impact $2.4bn of
debt), or announced that they are considering financing plans in this regard (7 issuers, poten-
tially impacting $1.2bn of debt). Totaling YTD calls and notices of potential redemp-
tions, BAB ERP activity would total $11.9bn for the year. Please note, this listing is
updated daily.
Figure 122: BAB ERP tracker

Ultimate Borrower CUSIPs Call Date Total Amount
Sthrn CA Pub Pwr 84247PEP2 1/19/2024 41,550,000
VA Trn Brd 927793TC3 3/14/2024 266,100,000
University of CA 91412F7Y7, 91412GDZ5, 91412GEA9, 91412GDY8 3/27/2024 1,215,130,000
State of WA 93974CRC6, 93974CRD4, 93974CRF9, 93974CRE2, 93974CPK0, 93974CPL8, 93974CPM6 4/1/2024 1,222,545,000
Purdue University 746189QT9, 746189QU6, 746189QV4 4/2/2024 60,040,000
NYS EFC SRF 64986AL58, 64986AL66, 64986AL74, 64986AL82, 64986AL90, 64986AL25 4/2/2024 155,875,000
MD Trans Auth 574300HZ5, 574300JQ3, 574300HY8, 574300JP5, 574300JN0 4/5/2024 721,135,000
NC Turnpike Auth 658308AF8, 658308AA9, 658308AB7 4/8/2024 208,060,000
Sacramento MUD 786005PM4, 786005PN2 4/11 & 5/15/2024 450,000,000
LA DWAP 544495UG7, 544525NZ7 4/18/2024 & 5/24/24 566,000,000
Los Angeles USD 544646ZR6, 544646XZ0, 544646XY3 4/30/2024 2,620,385,000
Hmptn Rds San Dist 409327DR1, 409327DS9 5/9/2024 99,265,000
ASU 04048RDR4, 04048RDS2, 04048RDT0 5/10/2024 120,240,000
State of Alaska 011770T79, 011770T87, 011770T95, 011770U28, 011770U36, 011770U44 6/4/2024 119,570,000
KY Prop & Bldg 49151E4G5, 49151E7B3, 49151E7C1, 49151E2Q5 6/4/2024 428,290,000
Total ERP Calls 8,294,185,000
CUSIP Ultimate Borrower Maturity Amount Call Date Call PX Announced Date Type of call
072024NV0 BATA 4/1/2050 850,000,000 TBD TBD 1/8/2024 Conditional
072024NU2 BATA 4/1/2040 203,875,000 7/5/2024 108.926 1/8/2024 Conditional
072024NT5 BATA 4/1/2030 89,405,000 7/5/2024 102.458 1/8/2024 Conditional
575579VP9 Mass Bay Transit Auth 7/1/2039 177,000,000 7/2/2024 TBD 5/21/2024 Conditional
575579WX1 Mass Bay Transit Auth 7/1/2031 62,500,000 7/2/2024 TBD 5/21/2024 Conditional
575579WW3 Mass Bay Transit Auth 7/1/2040 137,500,000 7/2/2024 TBD 5/21/2024 Conditional
68428TAD9 Orange Co San Dist 2/1/2044 134,170,000 6/20/2024 106.641 5/31/2024 Conditional
68607DNE1 OR DOT 11/15/2024 11,860,000 7/10/2024 TBD 5/15/2024 Conditional
68607DNF8 OR DOT 11/15/2025 12,305,000 7/10/2024 TBD 5/15/2024 Conditional
68607DNG6 OR DOT 11/15/2026 12,810,000 7/10/2024 TBD 5/15/2024 Conditional
68607DNH4 OR DOT 11/15/2027 13,265,000 7/10/2024 TBD 5/15/2024 Conditional
68607DNJ0 OR DOT 11/15/2028 13,755,000 7/10/2024 TBD 5/15/2024 Conditional
68607DNK7 OR DOT 11/15/2030 71,625,000 7/10/2024 TBD 5/15/2024 Conditional
68607DNL5 OR DOT 11/15/2034 357,390,000 7/10/2024 TBD 5/15/2024 Conditional
4636324P1 Irvine Ranch Water CA 5/1/2040 175,000,000 7/12/2024 TBD 5/3/2024 Conditional
12082UAP4 Burbank CA Wtr Rev 6/1/2025 1,085,000 7/11/2024 100.000 3/29/2024 Conditional
12082UAR0 Burbank CA Wtr Rev 6/1/2036 16,340,000 7/11/2024 100.224 3/29/2024 Conditional
12082UAQ2 Burbank CA Wtr Rev 6/1/2040 8,620,000 7/11/2024 101.838 3/29/2024 Conditional
12082TAK8 Burbank CA Elec Rev 6/1/2030 15,245,000 7/12/2024 101.027 3/29/2024 Conditional
12082TAL6 Burbank CA Elec Rev 6/1/2040 35,210,000 7/12/2024 105.987 3/29/2024 Conditional
Total Conditional ERP Calls 2,398,960,000
59067ABJ1 Colorado Mesa Uni 5/15/2040 30,000,000 4/12/2024 Notice
59067ACQ4 Colorado Mesa Uni 5/15/2025 505,000 4/12/2024 Notice
59067ACR2 Colorado Mesa Uni 5/15/2030 2,840,000 4/12/2024 Notice
59067ACT8 Colorado Mesa Uni 5/15/2042 23,110,000 4/12/2024 Notice
597502BK8 Midland Co Hosp 5/15/2039 55,715,000 1/24/2024 Notice
597502BJ1 Midland Co Hosp 5/15/2029 20,280,000 1/24/2024 Notice
4255063K6 Hennepin Co, MN 12/1/2024 4,430,000 5/2/2024 Notice
4255063L4 Hennepin Co, MN 12/1/2025 4,540,000 5/2/2024 Notice
4255063M2 Hennepin Co, MN 12/1/2026 4,660,000 5/2/2024 Notice
4255063N0 Hennepin Co, MN 12/1/2027 4,785,000 5/2/2024 Notice
4255063P5 Hennepin Co, MN 12/1/2028 4,915,000 5/2/2024 Notice
4255063Q3 Hennepin Co, MN 12/1/2029 5,060,000 5/2/2024 Notice
491552UY9 KY Turnpike Authority 7/1/2025 34,005,000 5/8/2024 Notice
491552UZ6 KY Turnpike Authority 7/1/2030 96,625,000 5/8/2024 Notice
6817934Q5 Omaha Pub Pwr Dist 2/1/2041 111,595,000 5/16/2024 Notice
917565LB7 Utah Transit Auth 6/15/2039 261,450,000 5/22/2024 Notice
917565LK7 Utah Transit Auth 6/15/2040 200,000,000 5/22/2024 Notice
485424NF8 KS DOT 9/1/2035 325,000,000 5/23/2024 Notice
Total Notices Posted 1,189,515,000
Total ERP calls, conditional calls & notices 11,882,660,000
Source: EMMA, J.P. Morgan
104
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Ye Tian (1-212) 834-3051 14 June 2024
Housing bonds provide attractive after-tax yields for corporate

based buyers. AMT bond spreads are near local wides
In our persistent calls for buying before the start of the expected systemic bull market in
Treasuries and while the glut of municipal supply persists, we have suggested off-the-run
structures, which are largely not within the opportunity set for SMA and ETF mandates. To
help identify high-quality and higher yielding opportunities in the current market, we
extracted the highest yielding AA or better rated current call (8yrs+ call protection)
structure bonds traded this week. Our search, we excluded short call bonds which would
have been well represented among the list of higher quality and higher yielding transactions.
When we examine the top 50 transactions from this week’s list of high-quality yet high-
er yielding trades, we find that 39 of 50 (78%) and 89% of the amount traded, were
housing bonds. In Figure 123 below, we show the average trade yield on planned amortiza-
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tion class (PAC) and multifamily housing bond transactions through Thursday of this week.
We pulled PAC and multifamily transactions as these are less likely to experience
unexpected prepayments. Additionally, we included dollar price as we prefer bonds trad-
ing closer to par to protect the price performance implications of par calls due to any prepay-
ments that may occur.
We also provided the taxable equivalent yield on these bonds based on the top federal tax
rate for banks, and Life, and P&C companies, based on the tax related prorations limitations
on those investors. The green highlighting indicates that the taxable equivalent yield on
each of these bonds is greater than the yield on similar maturity AA bonds in the corpo-
rate and taxable municipal bond markets.
We included the comparison to corporates and taxable municipals, as investors looking for
replacements for BABs that have been called, would consider replacing with high
quality tax-exempt housing bonds that provide an after tax yield that tops their current
taxable fixed income alternatives. This list of bonds provides from 10-112bps of addi-
tional after tax yield versus AA corporates.
Naturally, the primary drawback of these tax-exempts are the fact that they are callable and
less liquid than comparably rated and term corporates. For investors who are not sensitive
to these two factors, tax-exempt housing bonds are a strong alternative to highly rated
corporate and taxable municipal bonds.
Please find additional information on municipal housing bonds here and here.
Figure 123: Yields of housing bonds are compelling vs. similar structure taxable and corporate bonds
Yield Adjusted For Top Corporate Tax Rates
Issuer CPN MTY NXT CALL Tax-Exempt Yield/$PRC Life Co. YLD P&C YLD Bank YLD Corp Bond YLD Taxable Muni YLD
MARICOPA CNTY & PHOENIX ARIZ INDL DEV AUTHS MTG (PAC) 6.25 1-Mar-55 1-Mar-33 4.426 / 109.375 5.25 5.31 5.60 4.66 4.65
NEW MEXICO MTG FIN AUTH (PAC) 5.75 1-Mar-54 1-Sep-32 4.077 / 106.713 4.84 4.89 5.16 4.66 4.65
NORTH CAROLINA HSG FIN AGY HOMEOWNERSHIP (PAC) 6.25 1-Jan-55 1-Jul-32 4.149 / 108.653 4.92 4.98 5.25 4.66 4.65
OKLAHOMA HSG FIN AGY SINGLE FAMILY MTG (PAC) 6.25 1-Sep-55 1-Mar-33 4.017 / 111.529 4.76 4.82 5.08 4.66 4.65
NEW YORK N Y CITY HSG DEV CORP (Multi Family) Green Bonds 4.90 1-May-64 1-May-32 4.874 / 100.165 5.78 5.85 6.17 5.05 5.27
NORTH DAKOTA ST HSG FIN AGY (PAC) 6.25 1-Jan-55 1-Jul-33 4.020 / 111.54 4.77 4.82 5.09 4.66 4.65
MASSACHUSETTS ST HSG FIN AGY (Multi Family) 4.90 1-Dec-59 1-Jun-33 4.864 / 100.255 5.77 5.83 6.16 5.08 5.22
VIRGINIA ST HSG DEV AUTH (Multi Family) 4.95 1-Jun-66 1-Dec-33 4.653 / 102.247 5.52 5.58 5.89 5.03 5.27
DISTRICT COLUMBIA HSG FIN AGY (Multi Family) 4.75 1-Sep-46 1-Sep-32 4.63 / 100.805 5.49 5.55 5.86 5.17 5.27
Source: MSRB, J.P. Morgan. Note: PAC housing bonds generally have average life of 5yrs.
Last week we provided a one page tabular comparison of the high level policies of the
presidential candidates, and the potential impact on the municipal market (link). Nat-
urally, one of the fundamental differences is their stance on the expiration of the individual
tax changes implemented in 2018 via the Tax Cuts and Jobs Act (TCJA). In this section we
will focus on changes to the Alternative Minimum Tax (AMT) which are set to expire at the
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JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
end of tax-year 2025.
Specifically, TCJA raised the income exemption for joint filers from $84,500k in 2017, to
$126,500 in 2023. The law also lifted the income levels where the exemption begins to phase
out from ~161k in 2017 to ~$1.2mn in 2023. In 2017, ~5 million households were subject
to the AMT, while 200,000 households paid the tax in 2018.
Much to our surprise, the sea change in the number of filers subjected to AMT and the
more generous income exemptions implemented in TCJA did not result in sustained
AMT spread tightening when implemented in 2018. Using the spread on AMT airport
bonds versus non-AMT airports as a spread proxy, we find that the average of 23bps from
2015-2017 dropped by only 5bps in 2018, and reverted back to 22bps in 2019.
It is clear to us that spreads reacted to the record open-end fund inflow cycle in 2021,
as the airport AMT vs non-AMT spread hit post TCJA lows of 17bps. The same can be
said in 2022, when AMT spreads hit a multi-year wide of 50bps in the record outflow
cycle. Interestingly, during market rallies in late 2023 and early 2024, AMT spreads hit new
period highs of 65bps. This as non-AMT airport bond yields rallied amidst heavy demand
from ETFs and SMAs, while yields on airport bonds that were subject to the AMT were
relatively flat (Figure 124). 5
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In our view, AMT spreads will not sustain a rally until open-end funds experience sustained
inflows. Until that time, corporate investors and other buyers who are not substantially
impacted by AMT, can enjoy the current ~50bps of spread on AA AMT airport bonds
versus non-AMT airports.
Figure 124: AMT Airport spreads reacted to the record open-end fund inflow cycle in 2021, with AMT vs
non-AMT spread hitting a post TCJA low of 17bps. AMT spreads hit multi-year wide of 50bps, in the
record outflow cycle of 2022
70 4000
50 3000
2000
30
1000
10
0
-10
-1000
-30
-2000
-50 -3000
-70 -4000
1/5/2017
3/5/2017
5/5/2017
7/5/2017
9/5/2017
1/5/2018
3/5/2018
5/5/2018
7/5/2018
9/5/2018
1/5/2019
3/5/2019
5/5/2019
7/5/2019
9/5/2019
1/5/2020
3/5/2020
5/5/2020
7/5/2020
9/5/2020
1/5/2021
3/5/2021
5/5/2021
7/5/2021
9/5/2021
1/5/2022
3/5/2022
5/5/2022
7/5/2022
9/5/2022
1/5/2023
3/5/2023
5/5/2023
7/5/2023
9/5/2023
1/5/2024
3/5/2024
5/5/2024
11/5/2017
11/5/2018
11/5/2019
11/5/2020
11/5/2022
11/5/2023
11/5/2021
Fund Flow (right axis) AMT AIRPORT SPRD (left axis)
Source: LSEG Lipper Fund Flow, MSRB, J.P. Morgan
In Figure 125 below, we show the average trade yield on the highest yielding AMT bond
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transactions through Thursday of this week. We pulled only AA or better rated bonds,
most of which are airport credits. As in the housing bond examples, we provide the taxable
equivalent yield on these bonds base on the top federal tax rate for banks and Life and P&C
companies, based on the tax related prorations limitations on those investors. The green
highlighting indicates that the taxable equivalent yield on each of these bonds is greater than
the yield on similar maturity AA bonds in the corporate and taxable municipal bond markets.
106
JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
Figure 125: The green shading shows AA or better rated AMT bonds where the taxable equivalent yield
is greater than corporates
Yield Adjusted For Top Corporate Tax Rates
Issuer CPN MTY NXT CALL Tax-Exempt Yield Life Co. YLD P&C YLD Bank YLD Corp Bond YLD Taxable Muni YLD
PENNSYLVANIA ECONOMIC DEV FING AUTH 5.00 31-Dec-57 31-Dec-32 4.53 5.37 5.43 5.73 5.09 5.22
DENVER COLO CITY & CNTY ARPT 4.125 15-Nov-47 15-Nov-32 4.5 5.34 5.40 5.70 5.16 5.26
CHARLOTTE N C ARPT 4.50 1-Jul-47 1-Jul-32 4.47 5.30 5.36 5.66 5.16 5.26
HAWAII ST ARPTS SYS 5.00 1-Jul-47 1-Jul-32 4.35 5.16 5.22 5.51 5.16 5.26
ATLANTA GA ARPT 5.00 1-Jul-48 1-Jul-33 4.34 5.15 5.21 5.49 5.16 5.27
LONG BEACH CALIF ARPT 5.25 1-Jun-47 1-Jun-32 4.32 5.12 5.18 5.46 5.16 5.26
METROPOLITAN WASH D C ARPTS AUTH ARPT 5.50 1-Oct-54 1-Oct-33 4.27 5.06 5.12 5.41 5.12 5.22
PORT AUTH N Y & N J 5.00 1-Dec-44 1-Dec-33 4.30 5.10 5.16 5.44 5.17 5.3
POLK CNTY IOWA 5.00 1-Jun-44 1-Jun-32 4.26 5.05 5.11 5.39 5.18 5.3
LOS ANGELES CALIF DEPT ARPTS 5.25 15-May-48 15-May-33 4.15 4.92 4.98 5.25 5.16 5.27
Source: MSRB, J.P. Morgan
Analysis of fund holdings shows managers largely allocate

duration and coupon in line with their benchmark indices, with
some variation by rating and sector
This week we analyzed municipal mutual funds’ holding data from eMAXX, with a
focus on differing bond characteristics, such as coupon, maturity, rating and sector vs. the
funds’ corresponding IG and HY bond indices (LMBITR and LMHYTR).
Before we discuss the results, it is important to note some limitations in the data. First,
the dataset only contains the municipal bond CUSIPs held by funds, and does not include
cash or securities in other asset classes. Secondly, we were only able to match ~95% (by
AUM) of the funds reported by Lipper. Lastly, the most recent reporting date of the data is
as of 1Q24. Therefore, the data does not reflect the most recent allocations.
In the analysis that follows, we split funds by long term and intermediate IG funds, and HY
funds to show funds’ allocation by coupon, maturity, rating, and sector buckets. Looking
first at mutual fund holdings by maturity in Figure 126 and Figure 127, we find that IG and .x
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HY funds maturity allocation are very close to their benchmark indices. We note that
IG funds do allocate more capital in steepest 11-20yr part (35%) vs. the IG muni index
(32%), and slightly less in overvalued 6-10yr (20%) bonds vs the index (22%). HY funds
largely lean toward longer durations, similar to the composition of the municipal HY index,
and we also see some overweight in 11-20yr part of the curve.
Figure 126: IG funds allocated more capital in the steepest 11-20yr part Figure 127: HY funds largely lean toward longer durations, similar to the
(35%) vs. the IG muni index (32%) composition of the municipal HY index
IG funds allocation by maturity, % HY funds allocation by maturity, %
40% IG Funds 80% HY Funds
Funds Funds
30% 60%
Index Index
20% 40%
10% 20%
0% 0%
0-5yr 6-10yr 11-20yr 20yr+ 0-5yr 6-10yr 11-20yr 20yr+
Source: LSEG Lipper US Fund Flows, eMAXX, Bloomberg Finance L.P., J.P. Morgan. Note: as of
1Q2024. Cash allocation excluded. Par amount used in the analysis.
Next, we move to fund allocations by coupon structure. Not surprisingly, IG funds have a
larger allocation to defensive coupons versus the outstanding market, with funds holding
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JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
51% in 5% coupons. 4% (3.6-4.9%) bonds represent the second largest (24%), and
compare to 18% in the broader market (Figure 128). 8
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For HY muni funds, we find a larger share of 5+% coupon bonds (29%), given a large
number of lower rated securities. Zero-coupon bonds also represent a large share in HY
funds (based on par amount calculation), at 28%, as investors are eager to achieve higher
yields (Figure 129). t
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Figure 128: IG funds have larger allocation to defensive coupons versus Figure 129: For HY muni funds, we find a larger share of 5+% coupon
the outstanding market, with funds holding 51% in 5% coupons. 4% (3.6- bonds (29%), given a large number of lower rated securities
4.9%) bonds representing the second largest (24%) versus 18% in the HY funds allocation by coupon, %
broader market
IG funds allocation by coupon, %
60% IG Funds 40% HY Funds

50% Funds Funds
30%
Index Index
40%
30% 20%
20%
10%
10%
0% 0%
Zero <3.5 3.6-4.9 5s 5+ Zero <3.5 3.6-4.9 5s 5+
Source: LSEG Lipper US Fund Flows, eMAXX, Bloomberg Finance L.P., J.P. Morgan. Note: as of Source: LSEG Lipper US Fund Flows, eMAXX, Bloomberg Finance L.P., J.P. Morgan. Note: as of
1Q2024. Cash allocation excluded. Par amount used for both the index and funds. 1Q2024. Cash allocation excluded. Par amount used for both the index and funds.
By rating, IG funds generally have similar allocation vs. the IG municipal bond index
(LMBITR), while funds have less AAA (14% in funds vs. 21% in index) and AA (48% in
funds vs. 54% in index), but more allocations into A (28% in funds vs. 20% in index),
and BBB (9% vs. 5%) relative to the index (Figure 130). By overweighting lower credit A
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JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
Figure 130: IG funds generally have similar allocation vs. the IG municipal
bond index (LMBITR), while funds have less AAA and AA, but more
allocations into A, and BBB relative to the index
IG funds allocation by rating, %
Index
BBB Funds
AA
AAA
0% 10% 20% 30% 40% 50% 60%

Source: LSEG Lipper US Fund Flows, eMAXX, Bloomberg Finance L.P., J.P. Morgan. Note: as of
1Q2024. Cash allocation excluded. Par amount used in the analysis.
In terms of sector allocation, in comparing IG funds’ sector allocation vs. the Bloomberg
IG muni index, the distribution is largely the same, with GO (14% vs. 19%), water (7%
vs. 9%), multifamily housing, development and Tobacco sectors showing the largest differ-
ence. In the comparison of HY fund holdings vs. the HY index, we find that HY tobacco
and transportation are the top two sectors showing discrepancies.
Figure 131: IG funds sector distribution is largely the same, with the GO (14% vs. 19%), water (7% vs.
9%), multifamily housing, development and Tobacco sectors showing the largest difference
IG funds allocation by sector, %
25%
IG Funds
20%
Funds
15% Index
10%
5%
0%
Source: LSEG Lipper US Fund Flows, eMAXX, Bloomberg Finance L.P., J.P. Morgan. Note: as of 1Q2024. Cash allocation excluded. Par
amount used in the analysis.
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Ye Tian (1-212) 834-3051 14 June 2024
Figure 132: HY tobacco and transportation are the top two sectors showing discrepancies
HY funds allocation by sector, %
30%
HY Funds
25%
Funds
20%
Index
15%
10%
5%
0%
Source: LSEG Lipper US Fund Flows, eMAXX, Bloomberg Finance L.P., J.P. Morgan. Note: as of 1Q2024. Cash allocation excluded. Par
amount used in the analysis.
Finally, we also analyzed the allocation of AMT and non-index eligible bonds in both IG
and HY funds. IG funds currently hold ~6% AMT bonds, same as IG muni bond index.
HY funds are holding 14% AMT bonds, 5ppts higher than the 9% outstanding of HY
muni index.
For smaller size non-index eligible bonds, 12% of IG funds holding are non-index eligi-
ble size bonds and we also found 9% of HY funds holding non-index eligible bonds.
The municipal market expanded by 0.6% q/q and 1.0% y/y in

1Q24, according to the latest Fed Flow of Funds release
The $4.1tn municipal market expanded by 0.6% (+$24bn) on a quarter-over-quarter
basis and by 1.0% (+$41bn) on a year-ago basis in 1Q24. This marks a second quarterly
gain (+0.3% in 4Q23) following a contraction in 3Q23 (-0.3%) and two prior quarters of
growth (+0.4% in 2Q23 and +0.2% in 1Q23). For context, on an annual basis, the market
expanded by 0.5% in 2023 and contracted by 1.3% in 2022, following three years of growth
(+2.0% in 2021, +2.3% in 2020 and +0.4% in 2019).
In terms of the detail, holdings subject to individual tax rates increased by 4.4% y/y
(+$122bn) while holdings subject to corporate tax rates declined 8.9% (-$91bn). On a q/q
basis, holdings subject to individual tax rates increased 0.4% (+$12bn) and holdings
subject to corporate tax rates decreased 2.9% (-$28bn).
In terms of ownership, Figure 134 shows that households continue to comprise a plu-
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rality of the municipal market, with 44.5% ownership as of 1Q24, up from 42.6%oya.
And together with mutual funds, MMFs, closed-end funds, and ETFs, holdings subject to
individual tax rates accounted for 71.9% of the market, up from 69.5% in 1Q23, as owner-
ship by institutions subject to corporate tax rates contracted by 2.5% to 23.2%.
Of course, the municipal market has experienced a shift in ownership since the passage of
the 2017 Tax Cuts and Jobs Act (TCJA), which permanently reduced the U.S. corporate tax
rate from 35% to 21%, starting in 2018. Specifically, municipal holdings by institutions
subject to the corporate tax rate declined by 16.7% over 4Q17-1Q24 (Figure 138). In JA
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contrast, holdings subject to the individual income tax rate increased by 1.5% over the same
period (Figure 141). Put another way, ownership of the municipal market has shifted away
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from institutions subject to the corporate tax rate (from 27% in 4Q17 to 23% in 1Q24)
toward households and products subject to individual tax rates (from 69% to 72%) (Figure
135). Unless there are changes to the tax code, in 2026, the current top Federal individual
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Ye Tian (1-212) 834-3051 14 June 2024
income tax rate of 40.8% (37% + 3.8% ACA tax on interest income) will bump to 43.4%
(39.6%+ 3.8%). This would drive a further advantage in the taxable equivalent yield on
tax-exempt municipals, for investors that are subject to individual taxes versus those subject
to corporate taxes. We expect this would continue to skew ownership toward individuals
and particlraly if the individual tax rates return to pre-TCJA levels at the end of 2025. Please
see our last weekly publication for additional potential impacts from the potential expira-
tion/extension of other TCJA provisions on the muni market.
Figure 133: The municipal market expanded by Figure 134: Municipal bond holders that are Figure 135: Ownership post-TCJA has shifted
0.6% q/q (+1.0% y/y) in 1Q24 subject to individual tax rates represented 72% toward individuals
Size of municipal market, $bn of the market as of 1Q24 Proportion of the municipal market held by investor
Proportion of the municipal market held by investor classes, %
classes, %
4,200 Size of the Municipal market, $bn 4,081 Foreign Holders Misc
3% 2% 80% 72%
4,000 Life Insurance 69%
5% 70% 4Q17
3,800
P&C Insurance 60% 1Q24
3,600
5%
50%
3,400
US Banks
3,200 13%
40%
Household
27%
3,000 45% 30% 23%
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
2013Q1
2013Q3
2014Q1
2014Q3
2015Q1
2015Q3
2016Q1
2016Q3
2017Q1
2017Q3
2018Q1
2018Q3
2019Q1
2019Q3
2020Q1
2020Q3
2021Q1
2021Q2
2022Q1
2022Q3
2023Q1
2023Q3
2024Q1
ETFs 20%
3%
Mutual Fund 10% 2% 3% 2% 2%
Closed-end funds 19%
2% 0%
MMF Funds Subject to Subject to Foreign holders Misc
3% individual tax rates corporate tax rate
Source: Fed Flow of Funds, J.P. Morgan. As of 03/31/2024 Source: Fed Flow of Funds, J.P. Morgan. As of 03/31/2024 Source: Fed Flow of Funds, J.P. Morgan. As of 03/31/2024
Note: Holders subject to individual (corporate) tax rates shaded in
blue (gray)
Holdings subject to corporate tax rates decreased by 2.9% q/q and -8.9% on a y/y basis
in 4Q23
Holdings subject to corporate tax rates decreased by 2.9% q/q (Figure 136), following a /
q
%
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quarterly gain in 4Q23 (+4.5%) but contraction in 3Q23 (-5.8%) and 2Q23 (-2.5%). On a
year ago basis, corporate holdings are down 8.9% (to $929bn), led lower on a percent-
age basis by P&C insurers (-11.8% to $214bn), U.S. banks (-8.9% to $527bn) and life
insurers (-5.5% to $189bn) (Figure 137). )
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We believe the quarterly and y/y contraction in bank ownership is attributable to gen-
erally better yield in short/intermediate-term mortgage backed securities, and lesser
need for long-duration investment assets. Discord within the regional banking system
earlier in 2023 likely also has some impact on the y/y change. Meanwhile, we believe the
corporate tax rate cut in the TCJA has driven the ongoing decline in P&C insurer’s muni
ownership, which is down 37% relative to the last pre-TCJA period (4Q17) (Figure 138). JA
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Finally, we believe that the meaningful decline in taxable municipal issuance in recent years
has restrained growth in life insurance ownership, leaving holdings down 5.5% on the year.
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Figure 136: Corporate ownership of municipal Figure 137: ...and were down 8.9% on a year ago Figure 138: ...and remain lower relative to the
bonds decreased by 2.9% q/q... basis (-6.6%)... last pre-TCJA period
q/q change, % y/y change, % 1Q24 vs. 4Q17, %
0% 0% 0.0%
-2% -5.0%
($8.7)
-10.0% ($52.2) -4.4%
-4%
-15.0% -9.0%
-6% ($11.0)
-2% ($3.4) -20.0% ($186.3)
-5.5%
-1.8% -16.7%
-8%
-25.0%
($27.5) -10% ($51.2) ($90.7) -30.0%
($16.0) -8.9%
-2.9% ($28.5) -8.9%
-3.0% ($125.4)
-12% -11.8% -35.0%
($8.0) -37.0%
-4% -3.6%
-14% -40.0%
US Banks Life Insurance P&C Insurance Total Corporate US Banks Life Insurance P&C Insurance Total Corporate
US Banks Life Insurance P&C Insurance Total Corporate
Holdings Holdings
Holdings
Source: Fed Flow of Funds, J.P. Morgan.

As of 03/31/2024
Holdings subject to individual tax rates increased 0.4% q/q and 4.4% y/y in 1Q24
Figure 6 shows that the quarterly tick higher in holdings subject to individual tax rates
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(+0.4%) was driven on by mutual funds (+1.3% to $766bn) and household ownership
(+0.3% to $1.78tn). Meanwhile, ETF (-0.2% to $122bn) and money market fund holdings
(-1.3% to $128bn) declined on a q/q basis.
Year-over-year, ownership by all holder types subject to individual tax rates increased
(Figure 139). Specifically, household holdings were up +5.6% y/y - likely boosted by SMA
2
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growth - with increases also seen in ETFs (+15.7%), money market funds (+11.8%) and
mutual funds (+0.1%). In aggregate, holdings subject to individual tax rates increased by
4.4%oya in 1Q24.
Figure 139: Holdings subject to individual tax Figure 140: ...are 4.4% higher on a year ago Figure 141: ...and higher relative to the last pre-
rates increased by 0.4% in 1Q24... basis... TCJA period
q/q change, % y/y change, % 1Q24 vs. 4Q17, %
2% $77.6
$9.5 18% $16.6 14.0%
15.7% 11.3%
1.3% 16% 12.0%
$13.5 10.0%
$12.0 14%
$5.3 11.8% 8.0%
0.3% 0.4% 12%
6.0%
10% $42.3
0% 4.0%
8% $93.8 1.5%
($0.26) 5.6% $122.2 2.0%
-0.2% 6% 4.4% 0.0%
4% -2.0%
$0.7
2% -4.0% ($111.0)
0.1%
($1.74) -6.0% -5.9%
0% ($6.5)
-2% -1.3% -8.0%
Households Mutual Fund ETF Money Market Total subject to -4.8%
Households Mutual Fund ETF Money Market Total subject indiv tax rates Households Mutual Fund Money Market Total subject to
to indiv tax indiv tax rates
rates
Source: Fed Flow of Funds, J.P. Morgan.

As of 03/31/2024
In terms of household ownership, other assets outpaced the growth of municipals in 1Q24,
on a percentage basis (Figure 142). Specifically, on a year ago basis, household ownership
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of Treasuries and money market funds increased by $490bn (+26%) and $600bn
(+18%), respectively, and ownership of corporate bonds increased by $600mn (+9%).
This compares with an increase of $938mn (+6%) for municipals. Over time, we expect
that municipal bonds will become a relatively compelling investment alternative over Trea-
suries and MMFs as the curve normalizes and as current tax-exempt yields increasingly
attract investor attention.
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Ye Tian (1-212) 834-3051 14 June 2024
Figure 142: Y/Y, on a percentage basis, growth in household ownership of Figure 143: Household ownership by asset class
Treasuries, MM assets and corp bonds outpaced growth in munis Household ownership by asset class ($tn)
4.5 Money Mkt

0.70 30%
Treasury securities
YoY change ($tn) 4.0
0.60 25% Munis
YoY change (%) 3.5 Corp
0.50
20% 3.0
0.40 2.5
15%
0.30 2.0
10% 1.5
0.20
5% 1.0
0.10
0.5
0.00 0%
0.0
Muni Bonds Corp Bonds Money Mkt Treasury securities
2019Q1 2020Q1 2021Q1 2022Q1 2023Q1 2024Q1
Source: Fed Flow of Funds, J.P. Morgan. As of 03/31/2024

Note: Not seasonally adjusted
Rating activity update

S&P recently published its count of May rating actions, reporting 50 upgrades and 40
downgrades for an upgrade/downgrade ratio of 1.3x. Activity over the last two months
has been mixed by sector, with downgrades exceeding upgrades in healthcare, private high-
er ed and utilities (see Municipal Markets Weekly, 05/31/24) vs. strength in local GOs, state
credits, and transportation. Leveraging this data, as well as Moody’s 1Q24 reported activity
and our manual compilation of Apr-May actions (which may differ from the rating agency’s
final counts), indicates that year-to-date upgrades have exceeded downgrades by 1.9x,
as of May 31. For context, full-year 2023 upgrade/downgrade ratios were 4.2x (S&P) and
3.6x (Moody’s), the highest full-year ratios since 2009 and 2007, respectively.
On a monthly basis, we estimate S&P and Moody’s combined upgrades exceeded down-
grades by 3.5x in January, 2.4x in February, 1.2x in March, 1.9x in April, and 1.6x in
May (Figure 144). .9
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Figure 144: Through May, we have observed upgrades exceed downgrades by 1.9x
Number of rating actions (left axis), Upgrade/downgrade ratio (right axis)
120 4.0
3.5
100
3.0
80
2.5
60 2.0
1.5
40
1.0
20
0.5
0 0.0
Jan Feb Mar Apr May
Downgrade Upgrade Upgrade/downgrade ratio
Source: S&P, Moody’s, J.P. Morgan

Note: Observations may differ from rating agencies’ final counts. As of 5/31/24.
Mid-Year Sector Outlooks
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Ye Tian (1-212) 834-3051 14 June 2024
Continued strength in the labor market, broadly favorable consumer fundamentals,

and stabilization in the housing market so far in 2024 generally point to continued
stable credit conditions in the muni market. And while state unemployment rates have
ticked up this year, this is relative to record lows reached or neared in 2023 (link). Despite
this strong backdrop, certain sectors face unique credit pressures, particularly those which
we have focused on this year, in the high yield portion of the market. Herein, in advance
of our upcoming Mid-Year Outlook publication, we provide a compilation of our sec-
tor outlooks for Healthcare, Mass Transit, Private Higher Ed, Charter Schools, Tobac-
co and W&S.
Key takeaways:
• Divergence in credit quality remains prevalent in higher ed, and appears to be

increasing in health care, based on fiscal 2023 financials. The same is expected in the
charter school sector, in terms of enrollment demand, and given state-to-state variation
in laws and demographics. This suggests opportunity for investors with credit resources
to identify mispriced securities.
• Limited sector supply in the heavily subsidized pandemic years bolstered debt
metrics for some, across sectors. The relative surge in supply this year suggests inves-
tors should consider the subsequent implications on issuers’ leverage and coverage.
• A side-by-side comparison of potential implications of the 2024 election on the muni
market by sector can be found here.
The rating agencies’ 2024 sector outlooks are largely unchanged since our last review in
mid-December (Figure 145). The two changes since then were: 1) S&P revised its outlook
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on public power electric utilities from stable to negative in January,citing risk to issuers’
financial performance from inflation-related affordability pressures, rising costs, and legis-
lative and regulatory mandates, and 2) Moody’s revised its mass transit outlook from
negative to stable earlier this month (detailed further below).
In terms of rate affordability and the strength of the U.S. consumer generally, muni investors
may find research from our equity research retail team interesting to follow. Their recent
survey work found US consumers’ outlook for monthly household bills/cost of living
is beginning to stabilize relative to 6 months ago (notably at the low- & middle-income
consumer demographics), though the majority of consumers do not find current excess sav-
ings or their recent salary increases as adequate enough to fully offset the cost of living,
resulting in increasingly cautious discretionary spending intentions (State of the US Con-
sumer, Matthew Boss, 4/22/24).
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Ye Tian (1-212) 834-3051 14 June 2024
Figure 145: Moody’s revised its outlook on Mass Transit from negative to stable in June 2024, bringing
all sector outlooks for the rating agency to stable
Sector Moody's S&P
States Stable Stable
Local governments Stable Stable
Higher education Stable Mixed
Charter schools Stable Stable
Healthcare Stable Negative
Housing Stable Stable
Public power electric utilities Stable Negative
Transportation
Airports Stable Stable
Mass transit Stable Negative
Public ports Stable Stable
Toll roads Stable Stable
Source: Moody’s Investors Service, S&P

Note: As of 6/11/24
Healthcare
A copy of our last update can be found here (1/19/24).
As of mid-May 2024, year-to-date tax-exempt healthcare supply was up 3.4x vs. the same
5 ½ month period in 2023, and up 94% relative to the trailing 5yr average for the period
(Municipal Markets Weekly, 5/17/24). The relative surge in 2024 stems from minimal issu-
ance in the heavily subsidized pandemic years. Encouragingly, balance sheets ahead of this
increase in issuance were generally in a sound state, based on preliminary FY23 medians
reported by S&P and Moody’s, respectively. Under the hood of median data, however, indi-
vidual hospital results varied widely, according to the rating agencies, and issuers still
grappling with performance recovery could see balance sheets tempered as a result of
increased issuance this year. The variability in recent financial performance could present
opportunity for investors with bespoke research capabilities.
Latest financial data: Key takeaways from preliminary FY23 healthcare medians, pub-
lished by S&P and Moody’s this spring, include:
• Individual hospital results varied widely: Some providers performed well, while oth-
ers improved from FY22 but posted metrics not in line with their ratings, and others
faced even more meaningful balance sheet erosion and operating performance difficul-
ties, per S&P. Moody’s similarly noted that performance varied widely as providers
were impacted differently by higher costs and changing volume trends.
• Operating performance: Median operating margins showed muted improvement
and remained at very low levels relative to prior years, attributable to high expenses,
which increased significantly in recent years and continued to rise in FY23, albeit at a
slower pace. While the growth in labor costs eased, with reduced reliance on contract
labor, permanent wage increases indicate expenses are now embedded higher.
• Liquidity: Days’ cash on hand decreased for a second year, driven by continued high
operating expenses, while unrestricted reserves were stable.
• Patient volume: Patient volumes improved, led by outpatient care. Length of stays
declined, reflecting improved productivity as a result of management teams’ initiatives,
supporting operating performance.
• Non-recurring funds: FY23 was generally the first year that providers did not benefit
from significant CARES Act funding. One-time 340B Medicare settlement payments
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Ye Tian (1-212) 834-3051 14 June 2024
are expected to provide some cash lift for eligible systems in either FY23 or FY24
(depending on FYE timing)- this uplift is not reflected in the preliminary median data,
which is generally based on providers who have fiscal years ending prior to June 30,
from our understanding. The impact of the payment on cash levels for most eligible
providers is expected to be limited, but it could potentially aid near-term covenant com-
pliance for weaker systems.
Has rating activity improved in 2024? Downgrades have continued to exceed upgrades
in 2024, sustaining a multiyear period of predominately negative actions, although there
appears to be some easing relative to 2023. In 1Q24, S&P reported 3 upgrades and 10 down-
grades, for an upgrade/downgrade ratio of 0.3x, reflecting slight improvement from activity
in 4Q23 (0.2x) and 3Q23 (0.1x) (Figure 147). The modest improvement continued into
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April and May 2024, with 3 upgrades/6 downgrades over the 2-month period for a ratio of
0.5x, resulting in a year-to-date upgrade/downgrade ratio of 0.3x. This compares favorably
to full year 2023 activity (0.2x) but lags 2022 (0.5x). The trend in Moody’s rating activity
in 2024 has been similar to S&P, with an upgrade/downgrade ratio of 0.5x in 1Q24, vs.
0.4x in full year 2023 but 0.6x in 2022. Note that S&P’s quarterly rating activity counts can
differ somewhat from their monthly reported data (for example, their 1Q24 rating activity
report cited 3 healthcare upgrades/10 downgrades vs. 3 upgrades/13 downgrades when we
aggregate the actions they reported in Jan-Mar).
Figure 146: Moody’s healthcare downgrades exceeded upgrades by 2.0x Figure 147: S&P reported an upgrade/downgrade ratio of 0.3x in 1Q24 vs.
in 1Q24 0.2x in full year 2023 and 0.5x in 2022
Moody’s healthcare rating activity S&P healthcare rating activity
40 Downgrade 2.0x 100 2.0x
Upgrade Downgrade
30 Upgrade/downgrade ratio 1.8x 80 Upgrade 1.8x
Upgrade/downgrade ratio
20 1.5x 60 1.6x
10 1.3x 40 1.4x
0 1.0x 20 1.2x
-10 0.8x 0 1.0x
-20 0.5x -20 0.8x
-30 0.3x -40 0.6x
-40 0.0x -60 0.4x
-50 -0.3x -80 0.2x

2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
1Q24
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
1Q24
Source: Moody’s, J.P. Morgan Source: S&P, J.P. Morgan
What kind of credits are seeing downgrades? In 2023, downgrades were seen across pro-
vider types but biased towards stand-alone credits (36) vs. systems (21). Over Feb-Apr
2024, downgrades (13) were mixed by provider (6 stand-alone/7 systems). This indicates
that the traditional system benefits of size, scale and diversity alone are not necessarily suffi-
cient to address the current sector-wide pressures. States with the most healthcare down-
grades in 2023 were CA (7), NC (6), PA and WA (5 each). Downgrades were most preva-
lent in credits rated BBB+ prior to the time of action (11), followed by A and A+ (8 each).
Downgrades were limited in the AA rating bucket (5), as higher rated credits typically
have more cushion to withstand industry wide challenges. Over Feb-Apr 2024, downgrade
activity was concentrated in the BBB rating bucket (8). Operating losses were a common
driver cited in the downgrades over this period.
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Ye Tian (1-212) 834-3051 14 June 2024
Have outlooks improved? As of 1Q24 end, 22% of S&P’s healthcare ratings carried a
negative outlook; 74% were stable and 5% positive, indicating slight improvement from
3Q23 end (24% negative/71% stable/5% positive), which represented a historical peak of
negative outlooks and was cited as a key reason for the rating agency’s negative sector view
for 2024. The modest improvement in 1Q24 occurred as some entities stabilized operations.
Mass transit
A copy our last mass transit update can be found here (11/3/23). A copy of our last transit
ridership review can be found here (3/11/24).
Ridership update: In 1Q24, public transportation ridership fluctuated between 73-

79% of 2019 levels, when comparing the same week in each year, according to the Ameri-
can Public Transportation Association (APTA). Below, we summarize other key takeaways
from APTA’s latest (Apr 2024) public transportation ridership update (link):
• Public transit ridership appears to be recovering at a faster pace than office atten-
dance (see Figure 148), indicating transit agencies’ success in attracting non-commute
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trips and recovery in riders working non-office jobs.

• Ridership recovery has differed based on city size. In general, smaller cities - which
tend to serve relatively fewer riders with alternatives such as telework - have recov-
ered ridership to a higher level than larger cities. Data suggests medium-sized urban
areas have had particular difficulty attracting office workers and those with more
options back to transit.
• Ridership has tracked closely with job growth generally, and service industry jobs
more specifically.
• Bus ridership recovery has been the consistent leader relative to other transit modes,
largely due to demographics.
Figure 148: Public transit ridership appears to be recovering at a faster pace than office attendance,
indicating transit agencies’ success in attracting non-commute trips
Ridership: % of same period in 2019; Office occupancy: % of activity in Feb 2020
Source: APTA April 2024 Public Transportation Ridership Update (APTA Quarterly Ridership Reports, Apr 2020 – Dec 2023; APTA Ridership
Trends Dashboard Jan 2024 – Mar 2024; Kastle Back to Work Barometer, Kastle Systems)
Moody’s improved outlook: Moody’s revised its outlook on the mass transit sector from
negative to stable earlier this month, citing:
• Growing government support and tax subsidies- Expects that new S&L government
funding and tax subsidies will fill most of the operating funding gap for the sector by
2026 (see Figure 7, noting that the table was published prior to the announced congestion
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pricing delay).
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Ye Tian (1-212) 834-3051 14 June 2024
• Ridership is recovering at a faster pace than office attendance- see above.

• Sales taxes collections have grown sharply in recent years- sales taxes are a common
tax subsidy source for transit agencies.
• Stronger liquidity (Figure 8) - due to federal pandemic aid and strong tax collections.
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• Liabilities down from pre-pandemic levels- higher interest rates discounted accrued
liabilities for pensions/OPEBs, and debt issuance moderated for some.
Figure 149: Transit systems are set to receive increased government Figure 150: Several transits’ liquidity positions are stronger than pre-
funding pandemic levels, due to federal stimulus and strong tax collections
Days cash on hand
Source: Moody’s Ratings Source: Moody’s Ratings

Note: Table as of 6/4/24, prior to announced delay in congestion pricing
While increased government support for transit is clearly a positive in terms of closing fund-
ing gaps, a lasting shift in the revenue mix from directly-generated revenues to direct gov-
ernment funding poses risks, given the potential for budget stress at the S&L level, and
as public sentiment/political support for tax initiatives can sour. The timely example of this
risk is New York State Governor Hochul’s decision to pause the MTA’s NYC congestion
pricing program. Although the delay is not expected to pose an immediate liquidity
challenge for the MTA and does not appear to threaten the issuer’s credit ratings in the
near term (Figure 9), it is a clear credit negative. As described by the NYS Comptroller,
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“there’s more at stake than just delayed projects. If the MTA covers the shortfall in capital
funds by using its operating budget to pay for more borrowing, less money would be avail-
able for day-to-day operations and goals, like increasing service” (link).
Additionally, while conditions appear to be improving from a sector wide perspective,

all of the factors cited in Moody’s outlook revision (listed above) can vary widely from
issuer to issuer. For example, ridership recovery has varied widely by region and in turn,
by transit agency (see our 3/11/24 report for detail). Finally, it was just last May when
one-half of 122 responding transit agencies indicated that they were likely to see a fiscal
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Ye Tian (1-212) 834-3051 14 June 2024
cliff in the next five fiscal years (FY24-FY28), in a survey conducted by APTA (link).
Given the factors and data discussed herein, we remain cautious on the sector overall and
continue to think bespoke credit analysis is advisable.
Figure 151: The MTA’s credit ratings were not immediately impacted by the congestion pricing delay,
and do not appear to be at risk in the near term, based on the language in recently published rating
agency notes
Rating agencies’ views on the impact of the delay in congestion pricing on the MTA
Rating Immediate
agency action Date Reason for no immediate rating action What could drive a future action
Does not view the loss of proceeds from congestion pricing Extended delays in replacing the lost revenue from the
Fitch None 6/11/2024 as a near-term liquidity challenge. Believes the state would congestion plan, leading to a reassessment of the state's
provide support in case of need. propensity to provide support in the future.
Although the delay increases uncertainty regarding funding
Possibility of downgrade not mentioned- just potential that
sources for the current and next multiyear capital plan, the
the TRB rating could be constrained (its current Positive
S&P None 6/7/2024 postponement could eliminate the risk of lower traffic on
outlook, assigned in Oct 2023, indicates that it is under
MTA's bridges and tunnels. The PMT credit is backed by
consideration for upgrade over a 2yr period).
revenues not dependent on the MTA's operation/ridership.
Expects the MTA and state to quickly identify temporary Does not explicitly address what would drive a negative
funding solutions to shore up near-term liquidity and funding action but stated they would consider operating revenue-
Moody's None 6/7/2024
for committed projects and prevent delays of forthcoming backed debt issuance as an alternative to congestion
projects. pricing revenue as a credit negative.
Source: Fitch (accessed via Bloomberg Finance L.P.), Moody’s, S&P, J.P. Morgan
Private higher ed
A copy our last update can be found here (4/5/24).
Demographic projections are challenging for the sector and inform our preference for
universities with out-of-state draw and good revenue diversity: High school graduates
are projected to peak in number with the Class of 2025 and then decline by about 11%
through the Class of 2037, according to Western Interstate Commission for Higher Educa-
tion’s 2020 study. The projections show significant variation by state, ranging from -25%
(NM) to +14% (ND), although, as illustrated in Figure 152and Figure 153, only two states 7
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show a projected increase over the period (ND and FL). The median and mean projection
is -11%. The data suggest to us that universities already experiencing sustained enroll-
ment declines will likely continue to see their student population shrink over time. But
given the state-to-state variation, investors can find credits that will experience less
severe demographic headwinds, or ensure mitigating factors (like out of state draw)
are strong enough for institutions in states where future demand is projected to weak-
en at a more severe rate (MS, WV, WY, IL and MN, for example). Based on the outlook
for future weaker enrollment, we would also favor institutions that are not overly reli-
ant on tuition.
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Ye Tian (1-212) 834-3051 14 June 2024
Figure 152: The number of high school graduates is expected to decline Figure 153: ND, FL, NE, DC and NV are projected to experience less severe
in all but 2 states over 2025-2037 declines
Projected change in high school graduates, Class of 2025-2037 Projected change in high school graduates, Class of 2025-2037
20%
15%
10%
5%
0%
-5%
-10%
-15% Projected national change
-20%
-25%
-30%
WA
MD
MN
OH
MA
MT
MO
OR
GA
OK
MI
WI
ME
MS
WV
WY
ID
IA
IN
ND
FL
NE
DC
NV
TN
TX
SC
SD
DE
CA
IL
NC
AL
CO
PA
VA
NJ
AR
LA
UT
NY
NH
KY
AZ
HI
AK
RI
CT
KS
VT
NM
Source: Western Interstate Commission for Higher Education, Knocking at the College Door: Projec-
tions of High School Graduates, 2020, www.knocking.wiche.edu., J.P. Morgan
Takeaways from recent rating activity: In 2023, downgrades exceeded upgrades at both
rating agencies by 2.0x. Institutions rated BBB+/Baa1 or lower accounted for the
majority of downgrades in 2023, indicating bifurcation in credit quality. Downgrades
in 2023 were attributed to: sustained enrollment declines (S&P cited enrollment in 17 of the
23 credits it downgraded in 2023, in a sector rating action report); significant operational
deficits; weak financial performance; debt service covenant violations; and closure of an
institution. We were able to identify additional statistics of downgraded institutions using
data from Moody’s MFRA:
• 30 of the 39 higher ed credits downgraded by Moody’s in 2023-YTD 2024 were

private institutions.The median total FTE enrollment among the 30 private universi-
ties is 2,299, and 7,961 for public universities. For context, median enrollment across
all private universities in Moody’s universe was 3,530, and for all public universities
was 14,364.
• 27 institutions (or 69%) saw enrollment decline over the last 5 years.
• The median 5 year enrollment change for downgraded private universities was
-7% and -14% for public universities (the average was -5% for private/-13% public).
For context, using 2023 and 2019 median enrollment across all private universities in
Moody’s universe, the 5 year enrollment change was -4%, and the same for public uni-
versities.
• The median total cash and investments to operating expenses ratio for private
institutions was 1.6x and for public universities was 1.0x. For context, the median
ratio across all private universities in Moody’s universe was 2.5x, and for all public
universities was 1.1x.
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Ye Tian (1-212) 834-3051 14 June 2024
Figure 154: Institutions that have been recently downgraded are relatively Figure 155: ...and have experienced greater enrollment declines
small... 5 year enrollment change (%)
Enrollment
0%
-2%
Public -4%
-6%
-8%
All universities in Moody's
-10% Downgraded universities
universe
Private Downgraded universities -12%
All universities in Moody's
-14% universe
-16%
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Private Public
Source: Moody’s Investor Service (MFRA and individual rating reports), J.P. Morgan
Note: Downgraded universities over Jan 2023-03/27/24
Charter schools
A copy our two-part update can be found here (3/15/24) and here (3/22/24).
How has default/distressed activity evolved? Default activity in the sector has improved
over the last several years, attributable to materially improved underwriting standards, and
higher levels of issuance. The default rate is lower for rated securities. Subpar academic
performance has been the #1 driver, but detail shows that the instance of poor academics as
the primary cause was noticeably higher in pre-2013 defaults vs. post-2013. While default
activity has improved in recent years, there has been a noticeable increase in distressed
transactions, including technical defaults. Specifically, distressed charter school transac-
tions in 2023 totaled $86bn, representing a 1.2x increase over the trailing 5yr average
($39bn), according to Bloomberg data. And distressed transactions through mid-March
2024 already exceeded full year activity in 2019-22 (Figure 156). ln
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Figure 156: Distressed charter school transactions are on the rise

$mn
100
Distressed amount
80
60
40
20
0
2017 2018 2019 2020 2021 2022 2023 2024
YTD
Source: Bloomberg Finance L.P., J.P. Morgan

Note: As of 03/19/2024
Rating activity update: In terms of rating activity, charter schools have experienced a
reprieve over the last three years from a prolonged period of predominately negative actions,
due in part to the receipt of substantial federal pandemic aid. Specifically, S&P’s upgrade/
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Ye Tian (1-212) 834-3051 14 June 2024
downgrade ratio in 2023 was 1.0x, in 2022 was 3.0x and in 2021 was 1.1x. This follows a
nine year period where downgrades exceeded upgrades.
The shift to more favorable rating activity in recent years reflects stabilization of the sector
due to increasing demand, healthy funding levels (a result of states’ strong fiscal positions),
and the influx of federal pandemic aid. Pandemic aid has a usage deadline of September
2024, and many schools have already exhausted this money, according to S&P. Despite
this and some expected margin compression from 2023 levels, the rating agencies have sta-
ble outlooks for the sector in 2024, due to states’ strong reserves, healthy demand, good
liquidity, improvement in academic performance, and bipartisan support from a political
perspective. That said, similar to the higher ed sector, some disparity is expected, with
more-established charter schools in a better position to weather credit volatility than
newer schools. Dispersion is acutely noticeable in terms of enrollment demand, given state-
to-state nuance in demographics (Figure 157) and competition, as well as variation in state
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laws and support. For example, based on our March 2024 analysis (which has important
limitations; see full review for detail), Texas charter school bonds typically carry higher
ratings relative to other states, with a weighted average rating in the BBB category, attribut-
able to more-supportive state laws than in the rest of the country.
Figure 157: Future enrollment demand set to vary significantly by state, due to demographic trends
Projected change in minor population (ages 5-19) over 2023-2028
Source: S&P Global Ratings
Tobacco
A copy our two-part update can be found here (5/17/24) and here (5/10/24).
The National Association of Attorneys General (NAAG) reports MSA payments to states,
cigarette shipment volumes, and inflation and market share data adjustments annually. This
year’s release showed:
• Tobacco consumption declined by 8.7% in 2023, following a drop of 9.9% in 2022,

bringing the 5yr average consumption decline rate to -5.5% and the 10yr average rate
to -4.3%.
• Market share among the PMs declined by 1% y/y in 2023 (OPMs -2%/SPMs
+1%), with a commensurate 1% gain for the NPMs. In terms of the detail, OPMs, SPMs
and NPMs had market shares of 74%, 15% and 11% in 2023, respectively, vs. 94%, 3%
and 4% in 1999. Put another way, NPMs have gained solid market share over the last
two decades, primarily at the expense of OPMs. Despite some erosion in market share,
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Ye Tian (1-212) 834-3051 14 June 2024
the OPMs have maintained investment grade credit ratings since the MSA was signed,
buoyed by strong profit margins.
• With the continued decline in PMs’ market share (driven by OPMs), potential NPM
adjustments peaked at 25% in 2023. For context, potential NPM adjustments ranged
from 20%-24% during 2020-2022, 11%-18% during 2010-2019 and 2%-18% during
1999-2009.
• The inflation adjustment was 3.35% in the 2023 sales year, boosting MSA payments
to states.
• Given the factors above, MSA payments across all states declined by 9% y/y.
Figure 158: Potential NPM adjustments reached a peak of 25% in 2023, as Figure 159: The inflation adjustment was 3.35% in the 2023 sales year,
OPMs continue to lose market share boosting MSA payments to states
Market share (%) and Potential NPM Adjustment (%) Inflation adjustment under MSA
100% 8%
90%
7%
80%
70% 6%
60%
5%
50%
4% 3% floor
40%
30%
3%
20%
10% 2%
0% 1%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
OPMs SPMs NPMs Potential NPM Adjustment % 0%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Source: NAAG, J.P. Morgan
With the newest reported actual data listed above in hand, we applied the following assump-
tions in our cash flow forecast:
• Annual cigarette shipment volume - The consumption/volume adjustment is calculat-

ed as 98% of the difference between cigarette sales volume for a given year and the base
volume of 475.65bn. For our base case scenario, we assume cigarette shipment vol-
ume will decline by 5.5% y/y annually in perpetuity, which represents the five year
historical average rate of decline, as reported by NAAG. This rate is also the mid-
point of industry participant expectations (see below). Note, this is a faster rate of
decline that the Buckeye OS baseline assumption of 3.24%. Naturally, the actual rate of
decline is a large determinant of cash flow performance.
Commentary from BAT’s FY23 conference call: Prior to the pandemic, US com-
bustibles declined 4-5% y/y in volumes, but saw an uptick of +1-1.5% during the
pandemic from increased consumer spend supported by federal stimulus checks.
There has been a wind down in the past two years exacerbated by macro-pressures
with industry volumes down -7.5% in 2023 (-10.6% excl. low-end segment). BAT
estimates that post a normalization in the economy, the market could stabilize at a
5-6% decline per annum reflecting increased poly-usage across consumers (British
American Tobacco, Philip Spain, 2/12/24).
Notably, in an upside risk to our consumption assumption, it was recently reported
that the FDA is escalating its enforcement actions on illicit products (link to
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JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
Bloomberg article), which the major tobacco companies believe have contributed
to the cigarette volume decline rate. Specifically, Altria believes 1.5%-2.5% of cur-
rent industry cigarette volume declines are due to illicit products, according to
Moody’s.
• Inflation - We assume a rate of inflation at the floor of 3%, compounded annually.

• NPM adjustment - We assume the NPM adjustment in future years will be 21.9%,
which represents the 5yr historical average as reported by NAAG, and that none of this
capital is distributed to the states. Distribution of these funds would result in a more
favorable outcome than produced in our model.
• PMs market share - Some of the market share shift toward NPMs and away from PMs
is likely attributable to high inflation, which we expect to moderate. This thesis is sup-
ported by recent NielsenIQ data, which shows that the OPMs have clawed back some
market share in 2024. At the same time, increased consumer acceptance of value brands
provides a tailwind for continued NPM expansion. In turn, our base-case market share
assumptions apply a 0.5% OPM market share decline from actual 2023 levels annually
until 2033, where we assume it is maintained at 69% in perpetuity. The -0.5% assumed
rate is equal to the trailing 20yr average of OPM market share decline, as reported by
NAAG.
Results of our cash flow forecast can be found here (5/17/24).
Water and Sewer

A copy our last update can be found here (11/3/23).
As of mid-May 2024, year-to-date tax-exempt water and sewer supply was up 65% vs. the
same 5 ½ month period in 2023, and up 85% relative to the trailing 5yr average for the period
(Municipal Markets Weekly, 5/17/24). We believe the increase is the result of aging infra-
structure and seed capital from federal infrastructure legislation. In addition, states
have been aggressive in addressing their clean water needs. Aging infrastructure and
extreme weather events drive significant loss of water and costly maintenance. These issues
coupled with the potential for drought and the related impact on farming, industry, and
quality of life issues make a strong economic case for addressing water infrastructure issues
with a greater sense of urgency.
Latest financial data: We provide an overview of how financial performance is tracking

thus far based on combined water and sewer utilities with information currently available
in Moody’s MFRA database (265 systems in FY23 vs. 388 systems in FY22 vs. 417 in
FY21). Operations and maintenance (O&M) expenses are continually tracking higher,
due to the impact of inflation on labor and project costs. Specifically, median O&M expens-
es appear to be tracking 32% above fiscal 2022 levels. So far, the rise in median net funded
debt (+22% in FY23/ +13% in FY22) has been commensurate with an increase in operating
revenues (+24% in FY23/+11% in FY22), keeping leverage steady. Days cash on hand
increased from 500 in FY22 to 527 in FY23, a 5 year high (Figure 160). MADS coverage
.
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rose from 2.2x to 2.5x y/y, also a 5 year high (Figure 161). The median operating ratio in
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FY23 is tracking closely to FY22 (61.2%), which was up from 60.6% in FY21 (Figure 162 .and
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Ye Tian (1-212) 834-3051 14 June 2024
Figure 160: Liquidity strengthened in FY23, Figure 161: ...as did MADS coverage... Figure 162: ...and operating performance
based on data available for 265 combined W&S MADS coverage (x) Operating ratio (%)
systems...
Days cash on hand
600 Days Cash on Hand 3.0 Maximum Annual Debt 62.0%
Operating ratio (%)
Service Coverage(x)
500 2.5
61.5%
400 2.0
61.0%
300 1.5
60.5%
200 1.0
60.0%
100 0.5
0 0.0 59.5%
2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023
Source: Moody’s MFRA, J.P. Morgan

Note: Fiscal 2023 data only available for 265 systems. Reflects
combined water & sewer utilities only.
Recent rating activity: In 1Q24, S&P downgrades (11) exceeded upgrades (8) for a ratio
of 0.7x, although we note the same occurred in 1Q23 (0.5x) and 1Q22 (0.5x) and activity
on an annual basis in these years ended up decidedly positive. The 11 downgrades were
attributed to either deteriorating debt service coverage and liquidity, or to ESG factors
like limited transparency, poor risk management and exposure to climate
risks. Moody’s upgraded 5 credits in 1Q24, with no downgrades. While S&P’s upgrade/
downgrade activity was not particularly unusual in 1Q24 relative to prior first quarters, the
rating agency also placed 73 ratings on negative watch over the period, which represents a
surge relative to the last 12 quarters. This activity was attributed to two primary causes:
• Lack of timely information - 39 of the 73 actions were for utilities that had yet to
provide S&P with fiscal 2022 financial statements. We discussed this risk in our
Municipal Markets Weekly, dated 7/14/23.
• Analytical error identified in the rating agency’s economic fundamentals assess-
ment - could potentially impact 2% of their muni water, sewer, and solid waste utilities
portfolio, and accounted for 33 of the negative credit watch placements in 1Q24.
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Ye Tian (1-212) 834-3051 14 June 2024
Markets at a glance
Figure 163: YTD, muni yields across the HG curve are up by 64-69-64- Figure 164: We project a 10yr municipal high-grade yield of 2.60% by
37bps in 2-5-10-30yrs YE24
1 week 1 month YTD 1yr 1mo ahead 3Q24 4Q24 1Q25 2Q25
70 Treasury 6/14/2024 Forecast Forecast Forecast Forecast Forecast
2yr 4.69 4.70 4.75 4.60 4.30 4.05
60 53 57 51 5yr 4.23 4.25 4.40 4.30 4.00 3.80
50 10yr 4.22 4.20 4.50 4.40 4.20 4.00
Yield change, bps
40 30yr 4.35 4.35 4.65 4.60 4.50 4.35

27 AAA Tax-exempt
30 21 22
19 2yr 3.05 3.00 3.15 2.70 2.60 2.40
20
12 11 5yr 2.85 2.75 2.90 2.55 2.40 2.25
10 6
10yr 2.79 2.75 2.95 2.60 2.50 2.35
0 30yr 3.69 3.75 3.95 3.55 3.50 3.35
-2 AAA / TSY Ratios
-10
-10 -8 2yr 65% 64% 66% 59% 60% 59%
-20 -11 -12 -13
5yr 67% 65% 66% 59% 60% 59%
2yr 5yr 10yr 30yr
10yr 66% 65% 66% 59% 60% 59%
30yr 85% 86% 85% 77% 78% 77%
Source: Refinitiv, J.P. Morgan. Note: As of 6/7/24 Source: Refinitiv, J.P. Morgan
Figure 165: Tax-exempt net supply forecast Figure 166: Tax-exempt AA Muni/Corp ratios
Tax-exempt issuance Forecast, $bn
2022: $313bn 2023: $330bn AAA tax-exempt yield / Treasury yield (%) Z-score
50 2024: $350bn 2024 Est: 13bn Last Min Max Mean St. Dev. 3yr 5yr
2yr 66.5 58.7 68.5 63.9 2.5 0.6 0.6
40
5yr 68.7 56.3 70.6 61.5 3.6 0.4 0.4
30 10yr 67.8 56.5 70.0 61.2 3.5 0.2 0.2
30yr 84.9 81.2 86.4 83.2 1.2 0.3 0.3
20
AA corporate yield - AA tax-exempt yield (bp) Z-score
10 Last Min Max Mean St. Dev. 3yr 5yr
3-5yr 169 161 226 204 16 0.7 1.0
0
5-7yr 170 162 234 210 18 0.6 1.0
-10 7-10yr 184 174 244 220 17 0.7 0.9
25yr 130 120 151 138 7 0.5 0.8
-20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec yy indicates rich yy indicates cheap
Source: Bloomberg Finance L.P., J.P. Morgan Source: Refinitiv, J.P. Morgan
Note: Values over last 3 months displayed, as of 06/13/24
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Ye Tian (1-212) 834-3051 14 June 2024
YTD Issuance and Trading Trends

Figure 167: 10-20yr maturities have accounted for just under 40% of Figure 168: 66% of YTD issuance has been in 5-5.25% coupon bonds
YTD issuance, in line with historical average Proportion of issuance, %
Proportion of issuance, %
25% Prior 10yr issuance 70%
2023 Outstanding Mkt
60%
20%
2024 YTD 2023
50%
2024 YTD
15% 40%
30%
10%
20%
10%
5%
0%
0-3 3-4 4-4.25 4.25-4.5 4.5-4.75 4.75-5 5-5.25 5.25-5.5 5.5+
0%
1-5 5-10 10-15 15-20 20-25 25-30 30+
Coupon Buckets
Maturity Buckets, Years
Figure 169: New money deals have accounted for 60% of issuance so Figure 170: 5%-5.25% coupon bonds have accounted for the majority of
far this year YTD trading volume
100% 5.25-5.5 5.5+ Zero
5% 3% 2% 0.01-3
90% 21% 18% 21% 17% 17% 23% 2%
3-4
80% 6%
Percentage of Issuance, %
18% 15%
70% 17%
30% 37% 28% 4-4.25
60% 21%
50%
40% 5-5.25
66% 58% 4.25-5
30% 65% 60% 3%
49% 45% 48%
20%
10%
0%
2019 2020 2021 2022 2023 2024
New Money Refunding Combined
Source: Bloomberg Finance L.P., J.P. Morgan Source: MSRB, ICE, J.P. Morgan
Note: Long term bonds only Note: Long term, fixed coupon, tax-exempt bonds
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Ye Tian (1-212) 834-3051 14 June 2024
YTD total return and curve spreads
Figure 171: YTD total returns

70 100
YTD Yield Change (bps) 50
60 Total Return - Mod Dur
Total Return - Adj Dur 0
50
-50
40 -100
Bps
Bps
30 -150
-200
20
-250
10 -300
0 -350
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years to Maturity
Figure 172: The 2s/30s curve is 0.9 sigma below its one year average Figure 173: The 10s/30s curve is 1.2 sigma below its one year average
120 140
2s-30s 10s-30s
100 120
80 100
10s-30s
2s-30s
Min 85
Bps
60 Min 51 80
Bps
Max 101 Max 123

40 Avg 76 60 Avg 104
Std 13 Std 11
20 Last 65 40 Last 90
Z-Score -0.9 Z-Score -1.2
0 20
Jun-23
Jul-23
Jan-24
Jun-24
Oct-23
Nov-23
Dec-23
Aug-23
Sep-23
Feb-24
Mar-24
Apr-24
Jul-23
May-24
Oct-23
Apr-24
Jun-23
Jan-24
Jun-24
Mar-24
May-24
Aug-23
Sep-23
Dec-23
Feb-24
Nov-23
Source:
Figure 174: The 5s/10s curve is 1.4 sigma below its one year average Figure 175: The 10s/20s curve is 2.0 sigma below its one year average
15 95
10s-20s
85
10 5s-10s
75
5 10s-20s
65
Min 57
Bps
Bps
0 5s-10s 55
Max 87
Min -10
45 Avg 76
-5 Max 10
Avg 1 35 Std 7
-10 Std 5 Last 62
25
Last -6 Z-Score -2.0
-15 Z-Score -1.4 15
Jul-23
Jul-23
Aug-23
Sep-23
Oct-23
Nov-23
Dec-23
Feb-24
Mar-24
Jun-23
Apr-24
Aug-23
Sep-23
Oct-23
Nov-23
Dec-23
Jan-24
Feb-24
Mar-24
May-24
Jun-24
Jun-23
Jan-24
Apr-24
May-24
Jun-24
Source: Refinitiv Lipper, Bloomberg Finance L.P., J.P. Morgan. Note: As of 06/13/24
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Ye Tian (1-212) 834-3051 14 June 2024
Total return by state and sector
Figure 176: The average YTD total return for Bloomberg municipal bond indices by state is -0.09%
2.5%
2.0% YTD return
1.5% Average=-0.09%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
Kentucky
California
West Virginia
Florida
New York
Delaware
Arizona
Alaska
Virginia
Arkansas
Ohio
Hawaii
Dist. Of Columbia
Connecticut
Louisiana
South Dakota
Illinois
Mississippi
Nebraska
Oklahoma
Utah
Kansas
Iowa
New Hampshire
Puerto Rico
South Carolina
Rhode Island
Washington
Georgia
New Mexico
Massachusetts
Michigan
Vermont
Maine
Alabama
Wyoming
Montana
Colorado
Texas
Maryland
North Dakota
Indiana
New Jersey
Oregon
Guam
Minnesota
Nevada
Idaho
Wisconsin
Tennessee
Missouri
Pennsylvania
Virgin Islands
North Carolina
Figure 177: Year-to-date, the broader municipal market has returned - Figure 178: The Bloomberg muni index has returned -0.34% in the last
0.36% three months
1350 6%
Rolling 3 month total return, %
1300 4%
Index Price Levels, $
2%
1250
0%
1200
-2%
1150
-4%
Bloomberg Barcap Muni Mkt Index
1100 Rolling 3 month Pct Change
-6%
Nov-22
Jan-23
Jun-23
Mar-23
Nov-23
May-24
Jun-24
Dec-22
Feb-23
May-23
Jan-24
Mar-24
Aug-23
Dec-23
Feb-24
Jul-23
Sep-23
Oct-23
Apr-23
Apr-24
Sep-18
Dec-18
Sep-19
Sep-20
Sep-21
Dec-21
Sep-22
Dec-22
Sep-23
Jun-19
Jun-20
Mar-21
Jun-23
Mar-24
Jun-24
Mar-19
Dec-19
Mar-20
Dec-20
Jun-21
Mar-22
Jun-22
Mar-23
Dec-23
Figure 179: On a YTD basis, the HY muni index has outperformed Figure 180: YTD returns are negative by sector except for PreRe,
Hospitals and Tobacco
1.00% 0.87%
5.00% 4.09% 0.80% 0.59%
Year to date total return, %
Year to date total return, %
4.00% 0.60%
0.34%
0.40%
3.00% 0.20%
2.00% 0.00%
-0.20% -0.15% -0.08%
1.00% -0.19%
0.03% 0.17% -0.40%
-0.60% -0.52%
0.00% -0.62% -0.65%
-0.80%
-1.00% -0.36% -1.00% -0.85%
Rev
Hospital
PreRe/ETM
GO
Tobacco
Higher-Ed
Wtr & Swr

Trnspt
Electric
Housing
-2.00% -1.37%
Short Intermediate 22yr+ HY All - IG
YTD Total Return
YTD Total Return
Source: Bloomberg Finance L.P., J.P. Morgan, as of 06/13/24. Note: Total return calculated as the
percentage change in index levels. Bloomberg Municipal bond total return indices used
129
JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
Glossary of Publication Topics • SIFMA/Floating Rate notes: 03/15/2016, 08/26/2016,

3/31/2017, 4/28/2017, 04/13/2018, 9/14/2018,
Sector Overviews
02/20/2019, 04/26/2019
• Airports: 04/13/2018, 04/20/2018, 09/06/2019, • Taxable bonds: 5/11/2018, 12/14/2018, 03/29/2019,
05/15/2020,06/11/2021, 01/10/2022, 02/11/2022, 05/31/2019, 09/27/2019, 04/03/2020, 07/10/2020,
08/19/2022, 07/28/2023 07/24/2020, 08/14/2020, 08/21/2020, 10/16/2020,
• Bond Insurance: 03/18/2016, 6/23/2017, 10/27/2017 10/23/2020, 08/06/2021, 10/22/2021, 11/12/2021,
04/08/2022, 06/03/2022, 07/29/2022, 08/05/2022
• Charter Schools: 01/25/13, 03/15/24, 03/22/24
• Double-Barreled Bonds: 05/13/2016, 6/24/2016, • Toll Roads: 9/16/2016, 5/12/2017, 09/15/2017,
07/10/2020, 07/15/2022
05/13/2022
• Energy: 01/29/2016, 02/05/2016, 02/19/2016, 04/23/2021, • Tobacco: 11/20/2015, 12/15/2017, 7/27/2018, 03/29/2019,
05/07/2021, 08/19/2022, 08/26/2022, 5/10/24, 5/17/24
02/11/2022
• Environmental, Social, Governance (ESG) • Water & Sewer: 05/06/2016, 6/24/2016, 02/02/2018,
12/17/2021, 7/14/23
Bonds:06/01/2018, 10/22/2021
• Gas prepay: 3/10/2017, 06/07/2019, 3/10/2023, 3/24/2023
• Housing: 1/20/2017, 10/20/2017, 07/26/2019, 08/02/2019,
Specific Credits
12/10/2021
• Healthcare: 04/29/2016, 1/27/2017, 3/03/2017, 1/19/2018, • Assured Guaranty: 03/18/2016, 6/23/2017, 10/27/2017
1/28/2019, 2/1/2019, 01/24/2020, 10/16/2020, • National Public Finance Guarantee Corporation:
01/22/2021, 08/27/2021, 06/03/2022, 06/10/2022, 6/23/2017, 10/27/2017
9/23/2022, 4/28/2023, 01/19/2024
• Chicago & related credits: 9/23/2016, 2/10/2017,
• Higher Ed: 5/19/2017, 9/14/2018, 07/24/2020, 04/13/2018, 10/25/2019, 02/07/2020, 06/12/2020,
07/16/2021, 08/05/2022, 04/05/24 10/23/2020, 02/19/2021, 10/01/2021, 05/13/2022,
• High/Enhanced Yield: 9/8/2017, 9/15/2017, 7/27/2018, 10/14/22
8/03/2018, 05/08/2020, 05/15/2020, 06/05/2020, • Detroit: 05/14/2021
06/12/2020, 08/28/2020
• Dallas/Fort Worth & related credits: 6/02/2017,
• Local Government Credit: 4/07/2017, 11/10/2017, 08/04/2017, 04/13/2018
06/18/2021, 10/29/2021, 11/04/2022
• Houston & related credits: 02/19/2016, 6/02/2017,
• Low beta/defensive: 08/25/2017 08/04/2017, 09/01/2017
• Office: 04/14/2023, 05/12/2023, 07/07/23, 03/11/24 • New York City & related credits: 03/31/2015, 6/17/2016,
• Pensions: 11/03/2017, 10/12/2018, 10/19/2018, 9/9/2016, 8/17/2018, 08/23/2019, 06/12/2020,
10/26/2018, 04/05/2019, 04/17/2019, 08/16/2019, 05/21/2021, 04/08/2022, 04/22/2022, 05/20/2022,
08/23/2019, 10/18/2019, 07/30/2021, 11/05/2021, 01/20/2023
10/28/2022, 09/29/23 • Puerto Rico: 3/17/2017, 5/5/2017, 5/12/2017, 6/02/2017,
• Pre-refunded bonds: 1/29/2018 09/22/2017, 5/04/2018, 9/7/2018, 02/22/2019,
04/26/2019, 05/10/2019, 05/17/2019, 02/21/2020,
• Primary and secondary (K-12) education: 11/02/2018
03/05/2021, 04/30/2021, 01/28/2022, 02/04/2022,
• Public Power/Electric: 2/09/2018, 02/19/2021, 03/11/2022, 03/18/2022, 03/31/2023, 07/28/2023
07/09/2021, 03/18/2022
• Santee Cooper / MEAG / Westinghouse Bankruptcy:
• U.S. Ports: 04/15/2016, 05/20/2016, 11/18/2016, 3/17/2017, 3/24/2017, 3/31/2017, 9/21/2018, 9/28/2018
04/06/2018, 10/15/2021
• State of Alaska: 07/28/2017, 06/15/2018
• Secured Credits: 08/07/2015, 09/18/2015, 09/25/2015
• State of California & locals: 03/02/2018, 03/09/2018,
• Special Tax Bonds: 05/01/2015, 07/31/2015, 09/25/2015, 06/08/2018, 02/05/2021, 04/29/2022, 05/06/2022,
01/29/2016, 5/5/2017, 09/29/2017, 5/18/2018, 01/27/2023
04/26/2019, 05/03/2019, 01/31/2020, 05/20/2022
• State of Connecticut & locals: 8/18/2017, 5/18/2018,
• States: 11/13/2020, 2/5/2021, 09/24/2021, 02/25/2022, 10/4/2019, 05/01/2020
03/04/2022, 07/08/2022
130
JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
• State of Illinois & related credits: 9/29/2017, 7/13/2018, • COVID-19: 03/06/2020, 03/13/2020, 03/20/2020,
1/11/2019, 03/01/2019, 05/31/2019, 07/26/2019, 03/27/2020, 04/03/2020, 04/17/2020, 06/26/2020,
02/28/2020, 05/01/2020, 02/19/2021, 05/20/2022 07/31/2020, 01/08/2021, 02/26/2021, 09/17/2021
• State of New York: 5/16/2014, 09/29/2017, 2/8/2019, • CARES Act: 04/03/2020, 01/21/2022
02/10/2023
• American Rescue Plan: 03/26/2021, 04/09/2021,
• State of New Jersey & locals: 6/17/2016, 8/05/2016, 05/21/2021, 01/21/2022
3/24/2017, 3/31/2017, 4/27/2018, 5/04/2018, 03/15/2019,
05/01/2020, 05/21/2021, 06/04/2021
• Inflation Reduction Act: 08/05/2022, 08/19/2022,
08/26/2022
• State of Pennsylvania: 7/15/2016
• Infrastructure spending: 04/09/2021, 05/14/2021,
• State of Texas & locals: 08/04/2017, 08/16/2019, 07/16/2021, 08/06/2021, 09/17/2021, 01/21/2022
03/12/2021, 03/19/2021, 02/03/2023
• Fed facilities/Municipal Liquidity Facility: 8/11/2020
• State of Wisconsin & locals: 03/15/2015, 9/30/2016
• Regulatory reform/High-Quality Liquid Assets:
• U.S. Virgin Islands & Guam: 07/15/2016, 07/29/2016, 04/01/2016, 07/14/2017, 03/09/2018, 8/24/2018
2/24/2017
• Health-care reform/Medicaid funding: 3/10/2017,
3/17/2017, 3/24/2017, 6/23/2017, 07/28/2017, 11/22/2017
• Trade war and tariffs: 04/06/2018, 06/07/2019
Defaults/Distressed Munis
• Chapter 9/Distressed locals: 10/31/2014, 11/21/2014,

06/30/2015, 07/08/2016, 04/26/2019, 01/31/2020, Periodic Updates
02/07/2020
• Coupon performance: 04/08/2016, 9/21/2018,
• Defaults: 11/20/2015, 06/24/2016, 07/08/2016, 03/15/2019, 06/14/2019, 06/28/2019, 10/18/2019,
08/26/2016, 8/24/2018, 04/23/2020, 07/24/2020, 08/20/2021, 04/01/2022, 08/26/2022, 09/09/2022
09/24/2021, 02/11/2022, 03/11/2022, 07/29/2022,
01/6/2023, 01/05/24 • Federal Reserve Flow of Funds: 01/10/2020, 03/27/2020,
06/26/2020, 09/25/2020, 12/11/2020, 06/18/2021,
• GO Security/Statutory Lien: 10/2/2015, 11/4/2016 09/24/2021, 12/17/2021, 03/18/2022, 06/10/2022,
09/16/2022, 12/16/2022 , 12/15/2023, 03/15/24
• Make-Whole Call: 04/22/2016, 07/12/2019
Tax Policy
• Outflow cycle: 10/29/2021, 11/05/2021, 03/11/2022,
04/01/2022, 04/29/2022, 05/06/2022, 05/13/2022,
• AMT: 03/16/2018, 5/18/2018, 10/19/2018, 06/14/2019,
09/16/2022
04/01/2022, 05/20/2022, 12/9/2022, 07/28/2023,
02/02/2024 • Short call bonds: 08/28/2015, 12/11/2015, 03/04/2016,
3/3/2017, 3/10/2017, 08/04/2017, 03/26/2021,
• De minimis: 03/02/2018, 06/14/2019, 03/25/2022,
10/01/2021, 06/10/2022
05/06/2022, 05/13/2022
• State and local tax (SALT) deduction cap: 1/26/2018, • Taxable advance refunding: 09/13/2019, 10/25/2019,
7/6/2018,4/16/2021, 10/22/2021, 02/09/24 10/16/2020, 10/01/2021
• Tax-exemption: 3/1/2013, 3/15/2013, 05/20/2016 • Total Return & Performance: 05/13/2016, 06/10/2016,
5/19/2017, 07/07/2017, 11/10/2017, 02/23/2018,
• Tax swapping: 1/24/2014, 10/28/2016, 2/09/2018, 1/4/2019, 01/10/2022, 04/08/2022
10/12/2018, 11/15/2019
• Sovereign Government Relative Value: 09/09/2016,
• Tax reform: 2/28/2014, 12/16/2016, 4/28/2017, 01/19/2018, 8/17/2018
5/05/2017, 6/16/2017, 09/29/2017, 10/272017,
11/03/2017, 11/10/2017, 1/26/2018 • State and Local revenues: 04/13/2018, 9/21/2018,
1/11/2019, 05/17/2019, 06/21/2019, 09/20/2019,
01/10/2020, 04/17/2020, 09/11/2020, 09/18/2020,
11/13/2020, 01/29/2921, 06/18/2021, 11/12/2021,
Other Federal Public Policy 03/25/2022, 09/09/2022, 11/10/22, 2/24/2023, 02/23/24
• BABs: 02/23/24, 03/01/24 • Appropriation debt: 8/19/2016, 01/26/2024
131
JPMORGAN
Ye Tian (1-212) 834-3051 14 June 2024
Municipal Market Outlook
• 2H23 Outlook
• 2024 Outlook
Weekly Updates
• Economic and policy updates

• Next week’s supply, fund flows
• Comparisons versus Corporates, Treasuries, and Global
Sovereigns
• Full year gross, net-supply estimates, and interest rate
forecast
132
Luis Oganes AC (44-20) 7742-1420 North America Fixed Income
luis.oganes@jpmorgan.com Strategy
JPMORGAN
J.P. Morgan Securities plc U.S. Fixed Income Markets Weekly
14 June 2024
Emerging Markets
• In EM fixed income, we are MW GBI-EM local rates, CEMBI and EMBIGD.
• EM bond flows were -$1.5bn (-0.40% of weekly AUM, ↓ from +$596mn)
EM fixed income assets performance relatively muted following mixed US data senti-
ment. EMBIGD at 390bp tightened by 2bp while CEMBI tightened by 3bp (224). At 6.60%,
GBI-EM yields are marginally wider by 2bp. Retail bond fund flows reversed sharply this
week to -$1.5bn (from +$596mn, the largest outflow in 7 weeks), led by hard currency funds
(at -$866mn this week, from +$629mn). Local currency fund outflows rose substantially to
-$650mn (from -$33mn). ETFs saw inflows of +$80mn (from +$353mn), while non-ETF
funds saw outflows of -$1.6bn (from +$243mn). Within local currency, EEM ex-China saw
outflows of -$614mn (from -$4mn), while China-focused funds saw outflows of -$36mn
(from -$29mn). Within hard currency, AsiaXJ funds saw outflows of -$25mn (from
-$90mn), while “broad” EM funds saw outflows of -$841mn (from +$718mn).
Africa Sovereigns: Leaving stress behind

A stormy few years. African economies have endured a turbulent prior four years-grap-
pling with persistent external shocks emanating from the pandemic, which was closely fol-
lowed by Russia’s invasion of Ukraine and the consequent shock to commodity prices
-along with supply-side shocks leading to a sustained period of global financial tightening.
Policy makers in the region also reacted strongly, with perhaps the most accelerated pace
of monetary tightening on record to tame the very high inflation. As external markets
remained shut for the last two years, funding squeeze pressures arose with large debt roll-
over risks. Authorities have had to lower primary deficits, increase reliance on domestic
borrowing and engage new multilateral sources of financing to bridge both budget and
external gaps.
Build back better. As financing conditions have started to ease somewhat, external bond
markets have re-opened with earlier eurobond issuances from Cote d’Ivoire, Benin and
Kenya. We expect more African sovereign bond issuances later this year which could be
buoyed by further narrowing of bond spreads in the expectation of global financial condi-
tions easing further in 2H24. Furthermore, foreign portfolio inflows into domestic markets
have also resumed with renewed interests in the carry trades of Egypt, Kenya and to a lesser
extent, Nigeria. This should continue to help to rebuild FX buffers and ease currency pres-
sures.
High for longer. While we expect a firm disinflation path in 2H24, we think central banks
in the region are likely to keep nominal rates elevated, allowing for a sustained period of high
ex-post real rates until inflation falls sustainably towards target. Anchoring inflation expec-
tations and staving off FX pressures will also be a key consideration for central banks to keep
rates high for longer. More so, in a scenario where the downside risks to the US Fed cut
expectation materialises, external financing of budget deficits from market and commercial
sources will prove more expensive and difficult. In that event, keeping relatively high nomi-
nal rates could help attract foreign portfolio flows such as already been seen this year.
Risks to the outlook .The region remains quite vulnerable to global shocks particularly
from commodities as most economies remain very commodity dependent. However, cli-
matic shocks appear more pertinent and could have an impact on inflation, fiscal and exter-
nal balances. The EL Niño weather phenomenon is delivering droughts to the southern parts
133
JPMORGAN
14 June 2024
of the region while causing floods in eastern Africa. This could present another layer of
complication in the ongoing funding squeeze as financing gaps grow. Multilateral financing
along with international grants could help provide some cushion but authorities will have
to continue to embark on fiscal and structural reforms that will spur economic growth, lower
fiscal balances and stabilise debt over the medium term. For the defaulted names, there is
some light at the end of the tunnel as we expect the conclusion of the external debt restructur-
ing in Zambia and Ghana this year.
Strong market performance. The past year has seen EMBIGD Africa STW tighten by
more than 300bp, while the overall index was 130bp tighter. The outperformance followed
two challenging years wherein spreads of many of the Africa sovereigns screened above
1,000bp. The overall spreads started tightening towards the middle of last year given the
shift in global risk sentiment towards positive direction as US recessionary concerns started
diminshing. However, the material tightening in African sovereign spreads were also aided
by the positive idiosyncratic developments in most of these countries. The ease in financial
conditions also led to yields consistent with market access following a challenging two
years.
Valuations don’t look attractive but expect stable spreads.While valuations look un-
compelling compared to a year ago, we expect spreads to remain stable overall, with the
global risk environment providing a balancing effect. The outperformance over the past year
has limited the runway for further material tightening in African sovereigns, in our view,
however, improved macro fundamentals along with the relative ease in financial conditions
should allow spreads to remain stable. As such, while we don’t expect a repetition of materi-
al outperformance the same as last year, we don’t think spreads will materially widen either.
African sovereigns have led the overall EM spread tightening over the past year, driv-
en not only by the shift in global risk sentiment but also by positive idiosyncratic devel-
opments. Last year saw a strong comeback from African (ex-SA) sovereigns after having
witnessed a significant underperformance in 2022 given repayment and debt-sustainability
concerns. The strong performance has continued this year as well with EMBIGD Africa
more than 125bp tighter, outperforming other regions although the past month has seen
some underperformance. While the shift in global risk narrative did assist in spread tighten-
ing, the large magnitude of the move had to do with the positive idiosyncratic developments
in these sovereigns. These include Nigeria (swift and large structural reforms post elec-
tions), Kenya (increased multilateral support and regaining market access), Egypt( UAE
deal, FX devaluations and an upsized IMF programme), Tunisia (bilateral support and
improvement in reserves), Angola (Chinese debt repayment negotiations), Zambia and
Ghana (progress on restructuring).
Following a two-year hiatus, market access is back in range for most of these sover-
eigns due to the decline in borrowing costs. After having been priced out over the past two
years, many of the African sovereigns have seen their overall borrowing costs decline mean-
ingfully, effectively opening the door to access primary markets. Cote d’Ivoire became the
first country from the SSA region to return to markets this year with a $2.6bn dual-offering
(2033s, 2037s). Benin followed soon after with an inaugural $ bond issuance ($750mn
2038s). Kenya was also able to assuage market concerns around its external accounts with
$1.5bn (2031s) of new supply as part of a liability management exercise. A further decline
in borrowing costs and a low volatile environment could see some more African sovereigns,
especially those teetering close to 10% yield levels, access markets.
134
JPMORGAN
14 June 2024
Valuations now look less compelling compared to a year ago while investors’ risk expo-
sures have increased as well. Market reaction has been swift on any positive developments
in these sovereigns over the past year, with bond spreads on most of these countries now
closer to multi-year tights. Bond prices, too, have improved markedly with average prices
screening above 80 for most sovereigns. Zambia (on the back of agreement of the debt deal),
Tunisia (repayment of Oct 23s and Feb 24s), Egypt and Nigeria have seen the most improve-
ment in their average bond prices compared to a year ago. While the overall investor posi-
tioning is mixed in African (ex-SA) sovereigns based on the J.P. Morgan EM Client survey,
investors have added risk in beta names, i.e. Egypt, Kenya and Nigeria (although Angola
has seen a slight decline), and in defaulted sovereigns compared to a year ago. We believe
crowded positioning in Cote d’Ivoire, Egypt and Angola makes them susceptible to any
global risk-off scenario, while Kenya continues to be an UW.
That said, the current spreads level doesn’t screen rich too, especially given the current
global risk environment. While valuations look un-compelling, we believe spreads could
remain stable as long as US economic growth remains resilient and the Fed still seems
inclined to eventually deliver rate cuts. Furthermore, we believe macro fundamentals for
most of the African sovereigns have also improved over the past year with financing condi-
tions relatively favourable compared to a year ago. As such, while we don’t expect a repeti-
tion of the material outperformance the same as last year, we don’t think spreads will materi-
ally widen either.
Although we maintain a relatively benign view overall and are MW in the EMBIGD,
we think a few places do screen attractively in the Africa (ex-SA) sovereign
space. While valuations remain un-compelling, nothing screens as glaringly cheap or
attractive, however, a few places of dislocation remain, in our view.
Mozambique: We continue to maintain a bullish view on Mozambique (stay OW) given

the valuations and high carry in the low volatility environment, although we acknowledge
rising insurgency as risk. Nonetheless, the media reports of Rwanda deploying additional
troops for dealing with insurgency raises hope for stability in the region. The stability in the
region will result in a resumption of stalled LNG projects, which would be credit positive
and should materially improve economic prospects. Over the near term, the ongoing IMF
programme provides an anchor. While the recent staff assessment was critical towards the
wage bill spending rationalisation for further fiscal consolidation, it was positive on the
progress made towards structural reforms. The risks to our view include a deterioration in
the security situation and the IMF programme going off track.
Senegal: We remain OW Senegal with a view that the current administration will continue
to implement the IMF reforms and we expect it to be the fastest growing economy in the
region. The medium-term outlook on the country is favourable on the back of a possible start
of hydrocarbon production soon. In terms of valuations too, EMBIGD Senegal screens
cheap versus peers (see Spread vs Ratings) and is close to 30bp wider YTD, while EMBIGD
ex Venezuela STW is 45bp tighter. The risks to our view include non-sustainable policies
from the authorities, change in the global risk sentiment.
We move MW Cote d’Ivoire (from OW) given the decline in reserves amid the wider cur-
rent account, with crowded positioning limiting the scope for outperformance. As such, we
think its prudent to take off our OW although macro fundamentally it continues to be a stable
SSA country. We also recommend long TUNIS 25s given relatively low repayment con-
cerns and high yield. On others, we think current valuations seem fair and spread move-
ments will be more beta-like given the strong performance seen already.
135
JPMORGAN
14 June 2024
a
esu
v
g
ricn
p
A
S
V
D
/P
For further detail, see Africa Sovereigns: Leaving stress behind We go long TUNIS 5.75%
25s, and move MW IVYCST(from OW), G. Taiwo & N. Poojary, June 3, 2024
136
JPMORGAN
Srini Ramaswamy (1-415) 315-8117 14 June 2024
Forecast & Analytics

Interest rate forecast
Actual 1m ahead 3Q24 4Q24 1Q25 2Q25
14-Jun 14-Jul 30-Sep 31-Dec 31-Mar 30-Jun
Rates (%)
Effective funds rate 5.33 5.35 5.35 5.10 4.85 4.60
SOFR 5.31 5.30 5.35 5.10 4.85 4.60
2-yr Treasury 4.68 4.65 4.75 4.60 4.30 4.05

3-yr Treasury 4.42 4.40 4.55 4.40 4.15 3.95
5-yr Treasury 4.23 4.20 4.40 4.30 4.00 3.80
7-yr Treasury 4.21 4.20 4.40 4.30 4.00 3.80
10-yr Treasury 4.21 4.20 4.50 4.40 4.20 4.00
20-yr Treasury 4.47 4.45 4.70 4.60 4.40 4.20
30-yr Treasury 4.35 4.35 4.65 4.60 4.50 4.35
Spreads (bp)
Fed funds/2yr -65 -70 -60 -50 -55 -55
2s/10s -47 -45 -25 -20 -10 -5
2s/5s -46 -45 -35 -30 -30 -25
5s/10s -1 0 10 10 20 20
5s/30s 12 15 25 30 50 55
10s/30s 14 15 15 20 30 35
Source: J.P. Morgan
Swap spread forecast*
Actual 2Q24
14-Jun-24 6/31/2024
SOFR Swap Spread (bp)
* Forecast uses matched-maturity spreads

Source: J.P. Morgan
137
JPMORGAN
TIPS real yield & breakeven forecast

Actual 3Q24 4Q24 1Q25 2Q25
14-Jun-24 30-Sep-24 31-Dec-24 31-Mar-25 30-Jun-25
Breakevens (bp)
5Y 213 235 230 230 215
10Y 218 230 230 225 220
30Y 223 230 225 225 220
Real yields (%)
5Y 2.11 2.05 2.00 1.70 1.65
10Y 2.03 2.20 2.10 1.95 1.80
30Y 2.12 2.35 2.35 2.25 2.15
Curves (bp)
5s/10s BE 5 -5 0 -5 5
10s/30s BE 5 0 -5 0 0
5s/10s yld -8 15 10 25 15
10s/30s yld 9 15 25 30 35
Source: J.P. Morgan
Economic forecast
%ch q/q, saar, unless otherwise noted
23Q4 24Q1 24Q2 24Q3 24Q4 25Q1 25Q2 2023* 2024* 2025*
Gross Domestic Product
Real GDP 2.1 4.9 3.4 1.3 2.0 1.0 1.0 3.1 1.3 1.9
Final Sales 2.1 3.6 3.9 1.7 1.5 0.8 1.1 3.5 1.3 1.8
Domestic Final Sales 2.0 3.5 3.6 2.5 2.3 1.2 1.5 3.2 1.9 1.9
Business Investment 7.4 1.4 3.7 3.3 5.8 2.1 3.4 4.6 3.7 4.6
Net Trade (% contribution to GDP) 0.0 0.0 0.3 -0.9 -0.9 -0.4 -0.4 0.3 -0.6 -0.1
Inventories (% contribution to GDP) 0.0 1.3 -0.5 -0.5 0.5 0.2 -0.1 -0.4 0.0 0.1
Prices and Labor Cost
Consumer Price Index 3.0 3.4 2.7 3.8 3.3 2.5 2.4 3.2 3.0 2.4
Core 4.7 3.0 3.4 4.2 3.4 2.8 2.7 4.0 3.3 2.4
Employment Cost Index 4.1 4.1 3.8 4.8 3.3 3.0 2.8 4.2 3.5 2.9
Unemployment Rate (%, sa) 3.6 3.7 3.7 3.8 4.0 4.0 4.1 - - -
* Q4/Q4 change
Source: J.P. Morgan
138
JPMORGAN
Financial markets forecast cont.
Credit Spread Current YE24 Current YE24

10-year SOFR swap spread (bp) † -41 -34 S&P 500 (level)† 5432 4200
FNMA 30yr 6% Front Tsy OAS (bp) 28 30
Brent ($/bbl) 83 83
10yr conduit CMBS LCF AAA † 98 125
Gold ($/oz) 2333 2300
3-year AAA card ABS to Treasuries (bp) 48 45
EUR/USD 1.07 1.05
JULI spread to Treasuries (bp) 103 95
High Yield Index 349 380 USD/JPY 157 146
Emerging Market Index 390 400
Local currency: GBI-EM yield (%) 6.60% 5.58%
† Mid-year forecasts only

Source: J.P. Morgan
Gross fixed-rate product supply*
700
ABS CMBS MBS Corporate Agency
600
500
400
300
200
100
0
May 19 Nov 19 May 20 Nov 20 May 21 Nov 21 May 22 Nov 22 May 23 Nov 23 May 24
Treasury client survey

Output
All Clients
Long Neutral Short Changes Net longs
Jun 10, 2024 13 76 11 11 2 30

Jun 3, 2024 20 69 11 6 9 25
20
May 28, 2024 19 70 11 7 8 15
10
5
4-week avg 17 73 10 0
52-week avg 24 65 11 -5
-10
-15
-20
-25
-30
Jun 23 Sep 23 Dec 23 Mar 24 Jun 24
Page 1
139
JPMORGAN
Treasury net issuance forecast

J.P. Morgan projection of net Treasury issuance to private investors, Federal Reserve purchases of Treasuries, and expected change in Treasuries held by private investors; $bn
Year Net privately-held borrowing Fed secondary market purchases Net change in privately-held debt
Bills Coupons Bills Coupons Bills Coupons
CY 2019 77 1133 169 77 -92 1056
CY 2020 2547 1752 157 2184 2390 -432
CY 2021 -1195 2898 0 957 -1195 1942
CY 2022 -37 1638 0 75 -37 1563
CY 2023 2047 1107 0 0 2047 1107
CY 2024 332 1898 0 0 332 1898
Source: J.P. Morgan, US Treasury, Federal Reserve Bank of New York
T-bill weekly net issuance

Weekly net issuance of T-bills, historical and JPM projections; $bn
75
50 55 46
50 41 37
31 26 30
25
25 17 10
3 2
0
-25 -15 -13 -17 -19

-33 -34 -26
-50 -40 -42 -46
-52
-75
29 Feb 14 Mar 28 Mar 11 Apr 25 Apr 09 May 23 May 06 Jun 20 Jun 04 Jul 18 Jul 01 Aug
Source: J.P. Morgan
Dealer inventories
Primary dealer positions in Treasuries*, with 5-year statistics; $bn
Maturity Last 1w chg 5y avg 5y min 5y max 5y z-score
T-bills 69 -22 51 -4 119 0.7
<2y 33 7 35 -17 97 -0.1
2-3y 13 -3 5 -14 18 1.4
3-6y 68 10 28 -2 68 2.6
6-7y 20 -2 12 -4 29 1.2
7-11y 15 -1 3 -10 27 1.7
>11y 48 0 46 27 62 0.4
11-21y 21 3
>21y 27 -2
TIPS 25 2 13 1 25 2.3
FRNS 12 0 7 -14 28 0.8
Total 301 -9 200 76 314 1.8
Source: Federal Reserve Board of New York

*Latest data as of 5/29/2024
140
JPMORGAN
Investor position technical indicators

Current value of various position indicators* versus 1 month ago; 1-year z-score
1 0.9 0.7
0
0.0 -0.1 -0.1
-1 -0.5
5/15/2024
-1.1
-2 -1.4 6/14/2024 -1.4
-1.7
Client Survey CFTC Bond fund Macro HF CTA
Source: CFTC, Bloomberg Finance L.P, SG, HFR, J.P. Morgan
* JPM Client Survey refers to a 4-week moving average of our Treasury Client Survey Index; (Longs+Neutrals)/(Shorts+Neutrals), see Survey Says: Using the Treasury Client Survey to predict rates
moves, 7/21/23for more details. CFTC refers to the non-commercial net longs in UST and SOFR futures contracts reported by the CFTC. CTA beta is the four-week partial beta of SG CTA Index to 10-
year UST yields. Real money beta is the eight-week partial beta of excess returns of the 20 largest actively managed US core bond funds to 10-year UST yields. Macro HF beta is the six-week partial beta
of HFRX Macro/CTA Index to 10-year UST yields
Treasury market functioning metrics

Various metrics of Treasury market functioning; units as indicated
Indicator Today 1w chg 1y avg 1y min 1y max 1y z-score
Duration weighted mkt depth*; $mn 211 -36.0 201 134 282 0.3
10y price impact**; 32nds 0.7 0.2 0.8 0.4 1.2 -0.5
1m GC/OIS; bp 6.4 0.0 5 -0.1 14.6 0.4
UST curve RMSE***; bp 4.6 0.5 3.2 2.3 4.6 2.4
10s/3x old 10s ASW; bp -0.4 0.3 -1.2 -3.1 0.3 0.9
30s/3x old 30s ASW; bp 0.3 -0.1 -0.3 -2.1 1.2 0.7
Source: J.P. Morgan

* Market depth is the sum of the three bids and offers by queue position, averaged between 8:30 and 10:30am daily
** Price impact defined as the average move in order book mid-price against a $100mn flow in traded notional. See Drivers of price impact and the role of hidden liquidity, J. Younger et al., 1/13/17 for
more details.
*** Root Mean Square Error of J.P. Morgan par fitted Treasury curve (see The new and improved Treasury par curve model, 7/16/18)
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JPMORGAN
Select Federal Reserve balance sheet items

3700 1000
2300 ON RRP ($bn)
3600 900 2100 20d moving avg ($bn)
800 1900
3500
700 1700
3400 600 1500
3300 500 1300
TGCRRATE Index
3200 400 1100
300 900
3100
Reserve Balances ($bn) 200 Treasury General Account ($bn) 700
3000 500
28d moving average ($bn) 100 20d moving avg ($bn)
2900 0 300
Jul 23 Sep 23 Nov 23 Jan 24 Mar 24 May 24 Jul 23 Sep 23 Nov 23 Jan 24 Mar 24 May 24 Jul 23 Sep 23 Nov 23 Jan 24 Mar 24 May 24
Select FRB Balance Sheet Items ($bn) 6/12/24 6/5/24 5/15/24 6/14/23 1wk Δ 1m Δ 1y Δ 1y avg 1y min 1y max Percentile Status**
Assets
SOMA Holdings 6701 6701 6747 7614 0 -46 -913 7141 6701 7614 0% Narrow
T-bills 195 195 195 276 0 0 -81 227 195 276 9% Narrow
Treasury Notes and Bonds 3791 3791 3823 4389 0 -31 -597 4088 3791 4389 37% Normal
Treasury FRNs 6 6 5 20 0 2 -14 12 5 20 9% Narrow
TIPS 351 351 350 368 0 1 -17 362 350 368 13% Narrow
Federal Agency Debt 2 2 2 2 0 0 0 2 2 2 0% Narrow
Agency MBS 2346 2346 2364 2550 0 -17 -203 2440 2346 2550 0% Narrow
Agency CMBS 8 8 8 8 0 0 0 8 8 8 0% Narrow
Total Assets 7259 7256 7304 8388 3 -45 -1129 7787 7256 8388 2% Narrow
Discount Window Borrowings 6 6 6 4 0 0 3 3 2 9 91% Wide
Liabilities
Reserves 3455 3408 3370 3325 47 85 130 3377 3115 3626 68% Normal
Treasury General Account 650 703 806 133 -53 -155 517 686 133 962 29% Narrow
Overnight RRP* 387 372 444 2109 15 -57 -1722 995 327 2109 2% Narrow
Foreign RRP 385 374 383 328 11 2 57 334 289 385 100% Wide
Other Deposits 147 153 154 210 -6 -7 -63 164 146 210 2% Narrow
Source: Federal Reserve Bank, Bloomberg Finance L.P., J.P.Morgan
* Overnight RRP as of 06/14/24 6/14/24 6/12/24 6/13/23 3/21/2023
** Status: “Normal” means the current value is within 30-70% percentile over the past year. “Narrow” means the current value is within 10-30% percentile over the past year. “Wide” means the current value is within 70-90% percentile
over the past year. A orange highlighted “Narrow” means the current value is less than 10% percentile over the past year. A orange highlighted “Wide” means the current value is greater than 90% percentile over the past year.
Money market funds

Assets under management ($bn) Weighted average maturity (days)
3500 Prime Govt/Agy Treasury 50 Prime Govt/Agy Treasury

45
3000
40
2500 35
30
2000 25
20
1500
15
1000 10
5
500
Source: Crane Data, J.P. Morgan
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JPMORGAN
US funds flows
US Fund Flows ($mn) Monthly Weekly
Apr Mar Feb Jan Dec 6/12/2024 6/5/2024 5/29/2024 5/22/2024 5/15/2024
UST 3,251 5,139 8,236 4,976 (7,026) 3,544 5,168 2,673 1,783 3,783
Mutual (2,012) 2,063 1,137 1,184 (1,705) (134) 1,185 76 300 (93)
ETF 5,262 3,076 7,099 3,792 (5,321) 3,678 3,983 2,597 1,483 3,877
IG 23,193 38,737 39,445 41,759 16,536 1,082 4,183 442 2,786 555
Mutual 15,518 26,436 28,591 23,701 1,934 (391) 2,171 322 833 297
ETF 7,676 12,301 10,854 18,058 14,602 1,449 2,516 195 2,091 168
HY (5,390) 1,158 1,019 4,192 4,023 699 2,625 (648) 1,886 1,886
Mutual (2,554) 1,444 1,929 1,347 24 (243) 495 94 169 148
ETF (2,836) (286) (910) 2,846 3,999 942 2,129 (742) 1,717 1,738
LL 2,601 1,791 977 792 798 217 810 376 128 777
Mutual 2,125 502 479 437 (545) 37 410 256 (39) 557
ETF 476 1,290 498 355 1,343 180 400 121 167 220
Municipal (782) 4,000 1,860 3,963 (621) 441 746 (249) (576) 507
Mutual (1,567) 2,864 2,466 4,091 (1,875) 85 (552) 68 129 232
ETF 786 1,135 (606) (129) 1,254 355 1,298 (317) (705) 275
Inflation Protected (717) (313) 801 1,023 (2,701) (408) 48 113 (75) (557)
Mutual (246) 911 1,330 1,015 697 (188) 9 (100) (69) (293)
ETF (472) (1,224) (529) 9 (3,398) (220) 39 213 (6) (264)
MBS 2,921 2,714 1,392 2,546 (860) 1,437 1,602 1,325 1,062 570
Mutual (122) 745 1,231 1,177 (1,398) 169 730 77 347 (242)
ETF 3,043 1,969 161 1,369 538 1,268 872 1,248 715 812
Agg 21,333 23,032 24,538 17,157 7,932 2,800 4,356 2,542 2,189 565
Mutual 13,077 17,915 18,801 14,368 2,021 (138) 2,802 419 769 (502)
ETF 1,345 3,261 1,514 4,252 2,282 2,937 1,554 2,123 1,420 1,068
Equities (26,681) 57,985 7,421 (3,995) 22,930 6,348 4,645 4,290 12,197 12,055
Mutual (41,527) (13,374) (20,415) (33,899) (52,571) (3,696) (3,105) (2,124) (2,817) (4,008)
ETF 14,846 71,360 27,836 29,904 75,501 10,044 7,749 6,414 15,013 16,063
MMFs (18,759) (70,642) 72,325 98,381 32,021 31,393 7,254 7,275 14,728 15,595
Prime (28,004) 9,343 32,675 52,621 1,213 8,568 (5,758) 2,756 6,197 (1,783)
Government 9,245 (79,985) 39,650 45,760 30,808 22,825 13,012 4,519 8,531 17,378
Source: EPFR, Crane Data, J.P. Morgan
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JPMORGAN
Market Movers Calendar

Monday Tuesday Wednesday Thursday Friday
17 Jun 18 Jun 19 Jun 20 Jun 21 Jun
Empire State survey(8:30am) Retail sales(8:30am) May 0.4% NAHB survey(10:00am) Housing starts(8:30am) Manufacturing PMI(9:45am)
Jun -10.0 Ex. autos 0.4% Jun 44 May 1.330mn Jun flash 52.0
Industrial production(9:15am) Permits 1.475mn Services PMI(9:45am)
New York Fed’s May 0.6% Juneteenth National Current account(8:30am) Jun flash 55.0
Williams(12:00pm) Manufacturing 0.5% Independence Day, markets 1Q Existing home sales(10:00am)
Philadelphia Fed’s Capacity utilization 78.8% closed Initial claims(8:30am) May 4.10mn
Harker(1:00pm) Business inventories(10:00am) w/e Jun 15 235,000 Leading indicators(10:00am)
Fed Governor Cook(9:00pm) Apr 0.3% Philadelphia Fed May
TIC data(4:00pm) Apr manufacturing(8:30am)
Jun 3.0
Auction 20-year bond (r) $13bn
Auction 5-year TIPS (r) $21bn
Richmond Fed’s Barkin(10:00am) Announce 2-year note $69bn
Boston Fed's Collins(11:40am) Announce 7-year note $44bn
Dallas Fed's Logan(1:00pm) Announce 5-year note $70bn
Fed Governor Kugler(1:00pm)
St. Louis Fed's Musalem(1:20pm) Minneapolis Fed's
Chicago Fed's Goolsbee(2:00pm) Kashkari(8:45am)
Richmond Fed's Barkin(4:00pm)
24 Jun 25 Jun 26 Jun 27 Jun 28 Jun

Dallas Fed Philadelphia Fed New home sales(10:00am) Real GDP(8:30am) 1Q final Personal income(8:30am)
manufacturing(10:30am) nonmanufacturing(8:30am) Jun May Durable goods(8:30am) May May
Jun FHFA HPI(9:00am) Apr Advance economic Consumer sentiment(10:00am)
S&P/Case-Shiller HPI(9:00am) Auction 2-year FRN (r) $28bn indicators(8:30am) Apr Jun final
Apr Auction 5-year note $70bn Initial claims(8:30am) w/e Jun 22
Richmond Fed survey(10:00am) Pending home sales(10:00am) Richmond Fed's Barkin(6:00am)
Jun May San Francisco Fed's
Consumer confidence(10:00am) KC Fed survey(11:00am) Jun Daly(2:00pm)
Jun
Auction 7-year note $44bn
Auction 2-year note $69bn
Fed Governor Bowman(2:15pm)
During the week: New York Fed's Williams (30 Jun)
1 Jul 2 Jul 3 Jul 4 Jul 5 Jul

Manufacturing PMI(9:45am) JOLTS(10:00am) ADP employment(8:15am) Jun Independence Day, markets Employment(8:30am)
Jun final May Initial claims(8:30am) w/e Jun 29 closed Jun
ISM manufacturing(10:00am) Light vehicle sales International trade(8:30am)
Jun Jun May
Construction Services PMI(9:45am) Jun final
spending(10:00am) Fed Chair Powell (8:30am) ISM services(10:00am) Jun
May Factory orders(10:00am) Jun
Announce 10-year note (r) $39bn

Announce 3-year note $58bn
Announce 30-year bond (r) $22bn
FOMC minutes
8 Jul 9 Jul 10 Jul 11 Jul 12 Jul

Consumer credit(3:00pm) NFIB survey(6:00am) Wholesale trade(10:00am) CPI(8:30am) Jun PPI(8:30am)
May Jun May Initial claims(8:30am) w/e Jul 6 Jun
Federal budget(2:00pm) Jun Consumer sentiment(10:00am)
Auction 3-year note $58bn Auction 10-year note (r) $39bn Jul preliminary
Auction 30-year bond (r) $22bn
Atlanta Fed's Bostic(11:30am)
Source: Private and public agencies and J.P. Morgan. Further details available upon request.
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JPMORGAN
Disclosures
Analyst Certification: The Research Analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple Research Analysts
are primarily responsible for this report, the Research Analyst denoted by an “AC” on the cover or within the document individually certifies,
with respect to each security or issuer that the Research Analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect the Research Analyst’s personal views about any and all of the subject securities or issuers; and (2) no part of any of the
Research Analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the
Research Analyst(s) in this report. For all Korea-based Research Analysts listed on the front cover, if applicable, they also certify, as per KOFIA
requirements, that the Research Analyst’s analysis was made in good faith and that the views reflect the Research Analyst’s own opinion,
without undue influence or intervention.
All authors named within this report are Research Analysts who produce independent research unless otherwise specified. In Europe, Sector
Specialists (Sales and Trading) may be shown on this report as contacts but are not authors of the report or part of the Research Department.
Research excerpts: This material may include excerpts from previously published reports. For access to the full reports, including analyst
certification and important disclosures, please contact your sales representative or the covering analyst’s team, or visit
https://www.jpmorganmarkets.com .
Important Disclosures
Market Maker/ Liquidity Provider: J.P. Morgan is a market maker and/or liquidity provider in the financial instruments of/related to
Republic of Kenya, Mozambique, Senegal, Tunisia, Republic of Cote d'Ivoire.
Manager or Co-manager: J.P. Morgan acted as manager or co-manager in a public offering of securities or financial instruments (as such
term is defined in Directive 2014/65/EU) of/for Senegal within the past 12 months.
Client: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients: Republic of Kenya, Mozambique,
Senegal, Tunisia.
Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as investment banking
clients: Senegal.
Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies)
as clients, and the services provided were non-investment-banking, securities-related: Republic of Kenya, Mozambique, Tunisia.
Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients, and the
services provided were non-securities-related: Republic of Kenya, Senegal, Tunisia.
Investment Banking Compensation Received: J.P. Morgan has received in the past 12 months compensation for investment banking services
from Senegal.
Potential Investment Banking Compensation: J.P. Morgan expects to receive, or intends to seek, compensation for investment banking
services in the next three months from Senegal.
Non-Investment Banking Compensation Received: J.P. Morgan has received compensation in the past 12 months for products or services
other than investment banking from Republic of Kenya, Mozambique, Tunisia.
Debt Position: J.P. Morgan may hold a position in the debt securities of Republic of Kenya, Mozambique, Senegal, Tunisia, Republic of Cote
d'Ivoire, if any.
Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium
reports and all J.P. Morgan–covered companies, and certain non-covered companies, by visiting https://www.jpmm.com/research/disclosures ,
calling 1-800-477-0406, or e-mailing research.disclosure.inquiries@jpmorgan.com with your request.
A history of J.P. Morgan investment recommendations disseminated during the preceding 12 months can be accessed on the Research &
Commentary page of http://www.jpmorganmarkets.com where you can also search by analyst name, sector or financial instrument.
Kenya - J.P. Morgan Sovereign Research Opinion History

Date Rating
12 Jan 23 Marketweight
22 May 23 Underweight
Mozambique - J.P. Morgan Sovereign Research Opinion History
145
JPMORGAN
Date Rating
25 Feb 22 Marketweight
14 Sep 23 Overweight
02 Feb 24 Marketweight
18 Mar 24 Overweight
Senegal - J.P. Morgan Sovereign Research Opinion History

Date Rating
12 Jan 23 Overweight
13 Mar 23 Marketweight
18 Mar 24 Overweight
Tunisia - J.P. Morgan Sovereign Research Opinion History

Date Rating
Côte D'Ivoire - J.P. Morgan Sovereign Research Opinion History

Date Rating
10 Jun 22 Marketweight
12 Jan 23 Overweight
02 Mar 23 Marketweight
05 May 23 Overweight
03 Jun 24 Marketweight
The table(s) above show the recommendation changes made by J.P. Morgan Sovereign Research Analysts in the instruments listed over the past three years (or, if
no recommendation changes were made during that period, the most recent change). Please see the Explanation of Sovereign Research Ratings below for the
definitions.
Explanation of Emerging Markets Sovereign Research Ratings System and Valuation & Methodology:
Ratings System: J.P. Morgan uses the following issuer portfolio weightings for Emerging Markets Sovereign Research: Overweight (over the
next three months, the recommended risk position is expected to outperform the relevant index, sector, or benchmark credit returns);
Marketweight (over the next three months, the recommended risk position is expected to perform in line with the relevant index, sector, or
benchmark credit returns); and Underweight (over the next three months, the recommended risk position is expected to underperform the
relevant index, sector, or benchmark credit returns). NR is Not Rated. In this case, J.P. Morgan has removed the rating for this security because
of either legal, regulatory or policy reasons or because of lack of a sufficient fundamental basis. The previous rating no longer should be relied
upon. An NR designation is not a recommendation or a rating. NC is Not Covered. An NC designation is not a rating or a recommendation.
Recommendations will be at the issuer level, and an issuer recommendation applies to all of the index-eligible bonds at the same level for the
issuer. When we change the issuer-level rating, we are changing the rating for all of the issues covered, unless otherwise specified. Ratings for
quasi-sovereign issuers in the EMBIG may differ from the ratings provided in EM corporate coverage.
Valuation & Methodology: For J.P. Morgan's Emerging Markets Sovereign Research, we assign a rating to each sovereign issuer (Overweight,
Marketweight or Underweight) based on our view of whether the combination of the issuer’s fundamentals, market technicals, and the relative
value of its securities will cause it to outperform, perform in line with, or underperform the credit returns of the EMBIGD index over the next
three months. Our view of an issuer’s fundamentals includes our opinion of whether the issuer is becoming more or less able to service its debt
obligations when they become due and payable, as well as whether its willingness to service debt obligations is increasing or decreasing.
J.P. Morgan Emerging Markets Sovereign Research Ratings Distribution, as of April 6, 2024
Overweight Marketweight Underweight
(buy) (hold) (sell)
Global Sovereign Research Universe* 12% 82% 6%
IB clients** 13% 50% 75%
*Please note that the percentages may not add to 100% because of rounding.
**Percentage of subject issuers within each of the "Overweight, "Marketweight" and "Underweight" categories for which J.P. Morgan
has provided investment banking services within the previous 12 months.
For purposes of FINRA ratings distribution rules only, our Overweight rating falls into a buy rating category; our Marketweight rating
falls into a hold rating category; and our Underweight rating falls into a sell rating category. The Emerging Markets Sovereign
Research Rating Distribution is at the issuer level. Issuers with an NR or an NC designation are not included in the table above. This
information is current as of the end of the most recent calendar quarter.
Explanation of Credit Research Valuation Methodology, Ratings and Risk to Ratings:

J.P. Morgan uses a bond-level rating system that incorporates valuations (relative value) and our fundamental view on the security. Our
146
JPMORGAN
fundamental credit view of an issuer is based on the company's underlying credit trends, overall creditworthiness and our opinion on whether the
issuer will be able to service its debt obligations when they become due and payable. We analyze, among other things, the company's cash flow
capacity and trends and standard credit ratios, such as gross and net leverage, interest coverage and liquidity ratios. We also analyze profitability,
capitalization and asset quality, among other variables, when assessing financials. Analysts also rate the issuer, based on the rating of the
benchmark or representative security. Unless we specify a different recommendation for the company’s individual securities, an issuer
recommendation applies to all of the bonds at the same level of the issuer’s capital structure. We may also rate certain loans and preferred
securities, as applicable. This report also sets out within it the material underlying assumptions used. We use the following ratings for bonds
(issues), issuers, loans, and preferred securities: Overweight (over the next three months, the recommended risk position is expected to
outperform the relevant index, sector, or benchmark); Neutral (over the next three months, the recommended risk position is expected to perform
in line with the relevant index, sector, or benchmark); and Underweight (over the next three months, the recommended risk position is expected
to underperform the relevant index, sector, or benchmark). J.P. Morgan Emerging Markets Sovereign Research uses Marketweight, which is
equivalent to Neutral. NR is Not Rated. In this case, J.P. Morgan has removed the rating for this particular security or issuer because of either a
lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating no longer should be relied upon. An NR
designation is not a recommendation or a rating. NC is Not Covered. An NC designation is not a rating or a recommendation. For CDS, we use
the following rating system: Long Risk (over the next three months, the credit return on the recommended position is expected to exceed the
relevant index, sector or benchmark); Neutral (over the next three months, the credit return on the recommended position is expected to match
the relevant index, sector or benchmark); and Short Risk (over the next three months, the credit return on the recommended position is expected
to underperform the relevant index, sector or benchmark).
J.P. Morgan Credit Research Ratings Distribution, as of April 06, 2024

Overweight Neutral Underweight
(buy) (hold) (sell)
Global Credit Research Universe* 27% 56% 17%
IB clients** 65% 59% 63%
*Please note that the percentages may not add to 100% because of rounding.
**Percentage of subject companies within each of the "Overweight," "Neutral" and "Underweight" categories for which J.P. Morgan
has provided investment banking services within the previous 12 months.
For purposes of FINRA ratings distribution rules only, our Overweight rating falls into a buy rating category; our Neutral rating falls
into a hold rating category; and our Underweight rating falls into a sell rating category. The Credit Research Rating Distribution is at
the issuer level. Issuers with an NR or an NC designation are not included in the table above. This information is current as of the end of
the most recent calendar quarter.
Analysts' Compensation:The research analysts responsible for the preparation of this report receive compensation based upon various factors,
including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.
Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US
affiliates of J.P. Morgan Securities LLC, may not be registered as research analysts under FINRA rules, may not be associated persons of J.P.
Morgan Securities LLC, and may not be subject to FINRA Rule 2241 or 2242 restrictions on communications with covered companies, public
appearances, and trading securities held by a research analyst account.
Other Disclosures
J.P. Morgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries and affiliates worldwide.
UK MIFID FICC research unbundling exemption: UK clients should refer to UK MIFID Research Unbundling exemption for details of J.P.
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J P M O R G A N North America Fixed Income

U.S. Fixed Income Markets Weekly

Cross Sector P. White, L. Wash, H. Cunningham Fixed Income Strategy

See page 145 for analyst certification and important disclosures.

Investment-Grade Corporates E. Beinstein, S. Doctor, N. Rosenbaum, S. Mantri

Source: J.P. Morgan

US Fixed Income Overview

Must Read This Week

Source: J.P. Morgan Source: J.P. Morgan

Current 7310 448 385 833 650 3434 16271

Figure 8: Cross sector monitor

Source: J.P. Morgan, Bloomberg Finance L.P., ICE, IHS Markit

Figure 9: YTD returns on various fixed income indices; %

Source: J.P. Morgan

Inflation takes a turn for the better

Figure 1: Core services CPI ex. tenants' rent and OER

Figure 2: CPI for motor vehicle insurance

Keep an eye on claims

Figure 3: Jobless claims

Fed scales back ‘24 rate cut expectations

Table 1: FOMC federal funds rate forecasts (median values eoy)

Goods sector data to firm in May

lowest levels since the beginning of April (Figure 11). c-A

Source: J.P. Morgan Source: J.P. Morgan, Federal Reserve, US Treasury

butterflies (see Trade recommendations).

Source: J.P. Morgan

R-squared: 34.9%; S.E. 1.8bp

Can open interest concentration in futures contracts indicate

-5000 US 22% -0.3 37% 0.6 25% 1.7 35% 1.7

Source: CFTC * Source: CFTC, J.P. Morgan

Source: : CFTC, J.P. Morgan Source: CFTC, J.P. Morgan

• Initiate 5-year duration shorts

• Unwind 50:50 weighted 3s/5s/7s belly-richening buterflies

- Unwind short 50% risk, or $45mn notional of T 4.25% Mar-27s

• Maintain 5s/30s steepeners

- Stay long 100% risk, or $112mn notional of T 4.875% Oct-28s

• Maintain 75%/6% weighted 5s/10s/30s belly-cheapening butterflies

- Stay long 75% risk, or $43mn notional of T 4.625% Sep-28s

Figure 23: Closed trades in last 12 months

Source: J.P. Morgan

Source: BEA, BLS, J.P. Morgan Source: J.P. Morgan

Source: J.P. Morgan

Source: J.P. Morgan Source: J.P. Morgan

Investigating the weakness in May supercore CPI

• Initiate 1Y1Y inflation swap longs

Figure 31: Trade performance over the past 12 months

Source: J.P. Morgan

Interest Rate Derivatives

Figure 1: The beginnings of policy clarity, at least in the near term

Source: J.P. Morgan.

5.5 7-Jun 14-Jun 22

15% Actu Proj.

0% 2019 -20 1.0

In summary, we view the cheapening in US Treasuries (versus swaps) as unlikely to be

-10 -4.0 2.4

-12 -4.5 2.8

-14 -5.0 Term funding Slope of 2037-40 term 3.2

Source: J.P. Morgan. Source: J.P. Morgan.

buying Feb 37’s versus selling USU4 futures

Closed trades over the past 12 months

Trade Entry Exit P/L

Duration and curve Entry Exit P/L

Initiate conditional exposure to a composite flattener in a selloff by buying 3Mx2Y payer