In this podcast Francis Diamond, Khagendra Gupta and Aditya Chordia discuss European rate market views for the second half of this year. This podcast was recorded on 12 June 2026. This communication is provided for information purposes only. Institutional clients can view the related report at https://www.jpmm.com/research/content/GPS-5329365-0 for more information; please visit www.jpmm.com/research/disclosures for important disclosures. © 2026 JPMorgan Chase &amp; Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P. Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party.

Global Rates: European Rate Markets – looking ahead over 2H26

At Any Rate

# Full Transcript

**Podcast:** At Any Rate

## Transcript

[SPEAKER_A] Hi, and welcome to At Any Rate, J.P. Morgan's global research podcast, where we take a look at some of the drivers behind the biggest trends and themes across fixed income, currencies, and commodity markets. I'm Francis Diamond, Head of European Rate Strategy at J.P. Morgan, and today I'm joined by my colleagues Khagendra Gupta and Aditya Chordia to discuss our thoughts on European rate markets over the second half of this year. So to state the obvious, the Middle East conflict has dominated European rate markets over the past few months, and I think going forward, we still expect this to be one of the main drivers as we look ahead into the second half. Latest news reports of an MOU on the deal between Iran and the US maybe have given a little bit of optimism to markets, but I think in our sense, the medium-term outlook for Middle East conflict still remains uncertain. And despite the recent fall in Brent oil prices, there is still an indirect impact of energy shock that will persist and impact both UK and European inflation dynamics over the coming months. If we look at market performance this year, front-end rate, so 1-year, 1-year SONIA, and 1-year, 1-year ESTR yields are 75 basis points 45 basis points higher respectively, as markets continue to expect some degree of monetary policy tightening. So let's start with the ECB, Khagendra, who have hiked policy rates 25 basis points this week as expected and presented baseline energy scenarios that imply a total of 4 hikes given more elevated and sticky core inflation projections. So how did you read the delivery? What do you think of current market pricing? And has the ECB dampened rate market volatility for now?

[SPEAKER_B] Thanks, Francis. Now, if the ECB's goal at the press conference was to keep market pricing largely stable, then President Lagarde was triumphant in that regard. As yields remained broadly unchanged during the conference, whereas volatility dropped like 0.2, 0.3 basis points per day. Now, of course, yields rallied towards the end of the day, but that was due to the positive headlines around Middle East and not on ECB. So the delivery was largely consistent with recent ones where volatility remains muted as the ECB sticks to its data-dependent meeting-by-meeting approach. As I mentioned, post the positive headlines around the Middle East, yields rallied a lot and the S2 curve is now pricing around, give or take, 7 basis points for June, 24 basis points for Sep, and 38 basis points of hikes for the December meetings. And with the peak of the S2 curve pricing around 43 basis points of further hike from the ECB, I think this These levels are broadly fair and believe that ECB pricing will remain in relatively modest ranges. The ECB didn't appear, in my view, to be concerned too far behind the curve, and thus we believe that future hikes will likely be measured and well telegraphed. And in my view, I think the t...

Global Rates: European Rate Markets – looking ahead over 2H26

Transcript

Built for investment professionals

Every day you wait, your competitors are finding
edge in conversations you're not hearing.

Global Rates: European Rate Markets – looking ahead over 2H26

Transcript

Built for investment professionals

Every day you wait, your competitors are findingedge in conversations you're not hearing.

Every day you wait, your competitors are finding
edge in conversations you're not hearing.