At Any Rate U.S. Rates - DeepFreeze
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Jan 31, 2025 Srini Ramaswamy, Global Head of Rates Derivatives Strategy at J.P. Morgan, joins Ipek Ozil to dive deep into the intricacies of U.S. rates markets. They discuss the Federal Reserve’s recent decisions and impactful comments from Chair Powell. The conversation highlights the implications of maintaining policy rates amidst inflation and labor dynamics. They also navigate yield curve trading strategies, revealing challenges in carry trades and examining term premium as a vital element in gaining market insights.
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Fed on Hold, Asymmetric Response
- The Federal Reserve (Fed) kept policy rates unchanged, as was widely expected.
- However, Chair Powell's press conference indicated that the Fed is on hold with an asymmetric response function.
Volatility and Fed on Hold
- A Fed on hold is generally bearish for volatility as interest rates are likely to remain range-bound.
- Short gamma strategies may outperform in the weeks following a Fed meeting if Fed funds curve steepening is unlikely.
Yield Curve Trading Strategies
- In a range-bound market driven by term premium, consider conditional belly cheapening butterfly trades in a sell-off.
- This offers asymmetric exposure to term premium; if it rises, the trade outperforms, if it falls, losses are limited.