At Any Rate US Rates: US rates market 2H25 outlook
Jun 16, 2025
Join Phoebe White, Senior U.S. Rate Strategist at J.P. Morgan, as she delves into the future of the U.S. rates market. Phoebe and her colleagues discuss the economic slowdown expected due to tariffs, and its impact on treasury yields and unemployment. They analyze the dynamics of the rates landscape, focusing on Fed policy and liquidity issues. Additionally, Phoebe highlights the inflation outlook and how tariffs might affect pricing, along with a positive perspective on inflation-linked securities amidst geopolitical strife.
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Treasury Supply Outlook
- Treasury supply will likely keep coupon auction sizes unchanged in 2H 2025 but is expected to increase from February 2026 onward.
- This increase could be more focused on front- and belly-curve maturities rather than longer durations.
U.S. Treasury Yield Dynamics
- Front-end U.S. Treasury yields are expected to lead lower toward year-end as the Fed remains patient and prepares to cut rates.
- Long-term yields remain anchored higher due to a structural rise in term premium driven by supply-demand imbalances.
Swap Spreads and Deregulation
- Despite deregulatory moves expected to happen faster, banking leverage constraints are low so swap spreads should narrow, not widen.
- Rising bond issuance and ongoing quantitative tightening are the key factors increasing term funding premium and compressing swap spreads.