US Fixed Income Overview Wrapping up our election insights-111263037

1Phoebe White AC (1-212) 834-3092phoebe.a.white@jpmorgan.comJ.P. Morgan Securities LLCLiam L Wash (1-212) 834-5230liam.wash@jpmchase.comJ.P. Morgan Securities LLCNorth America Fixed Income Strategy01 November 2024J P M O R G A N•Economics: Nonfarm payrolls increased 12k in October, likely weighed down by hurri-cane and labor strike distortions, and we take more signal from the downward revision in prior months’ job creation. We continue to expect the Fed to ease by 25bp at next week’s FOMC meeting•Treasuries: We think roughly 21bp of the recent intermediate Treasury moves could be attributed to the shift in election expectations in favor of a red sweep. We still see a further 20bp upside to 10-year Treasury yields if this outcome materializes, and would expect yields to decline somewhat in a divided government outcome, particularly in a Harris presidency. Valuations appear cheap, but we stay neutral given election uncer-tainty and next week’s front-loaded refunding supply. Markets continue to price in too little tariff risk: maintain beta-weighted 5-year breakeven wideners paired with an ener-gy hedge•Interest Rate Derivatives: Swap spreads moved sharply narrower this week on the back of election-driven deficit concerns. Looking ahead to next week and beyond, we now recommend de-risking and turning neutral on swap spreads across the curve. Although structural upside risk to supply remains a source of narrowing pressure, there are numerous potential near term offsets. We continue to recommend a bullish stance on short-expiry volatility, especially in longer tails•Short Duration: SOFR will likely stay elevated for a few days as repo averages remain higher in the fed funds corridor. Unsecured funding spreads typically widen this time of year, but significant widening is likely limited due to ongoing demand from money market investors•Securitized Products: The election promises potential regulatory changes which could impact mortgage market plumbing, and we review potential changes to Basel 3 End-game capital requirements, GSE reform, and FHA streamline rulings•Corporates: HG bond spreads have been sub-100bp for 4 weeks now with ratings and sector dispersion low, indicating that investors are not focused on potential election impacts on specific sectors•Near-term catalysts: Fed Meeting (11/6-11/7), Oct CPI (11/13), Oct PPI (11/14), Oct Retail Sales (11/15)Another week closer. Consistent with recent trends, Treasury yields continued to rise, cor-porate credit spreads remained tight, and mortgage spreads widened further despite a back-drop of mixed economic data. Overall the data point to moderating inflationary forces alongside continued labor market cooling, even while consumer spending remains buoyant. Starting with the Fed’s preferred measure of wage growth, the employment cost index rose 0.8% in 3Q, or 3.9% annualized, which is the slowest pace in three years. This signals less wage pressure on core services prices and, with wage growth still run