At Any Rate Global Rates: European rates market 2H25 outlook – range trade and selectively seeking carry
Jun 13, 2025
Khagendra Gupta, a JPMorgan colleague of Francis Diamond, provides insightful analysis on the Euro area and UK rate markets. They discuss trends in yields and volatility, emphasizing cautious strategies for the second half of the year. Expect broad range trading and inter-EMU spread dynamics to dominate the Euro area. In the UK, the Gilt curve faces fiscal challenges, influencing long-term yields. The conversation highlights opportunities for earning carry in the European volatility markets, revealing the interplay between swap spreads and monetary policy.
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Euro Area Rate Range Trading
- Euro area rates will trade broadly in a range in the second half of 2025, with limited directional moves expected.
- Carry trading opportunities emerge given yields near 10-year bond yield bottom around 230-240 basis points.
Euro 2s10s Curve Dynamics Shift
- The euro 2s10s swap curve is shifting from front-end driven to long-end driven dynamics.
- Too much fiscal premium is priced in, indicating potential for some curve correction as we progress.
Peripheral Spread Valuation Insights
- Peripheral spreads, especially Italy-Germany, look expensive and relatively rich against long-term sovereign risk metrics.
- Selective intra-EMU and SSA spread overweight is preferred over broad scaling given risk and valuation concerns.