Historical data reveals a recurring pattern where European corporates (Yankee issuances) tend to issue more dollar-denominated debt in October and November compared to US corporates issuing in Euros. This predictable seasonality is a key factor that can influence cross-currency basis swap pricing during that period.
J.P. Morgan believes the Fed's balance sheet runoff can continue until at least Q1 2026, and potentially longer. The financial system's ability to smoothly handle recent funding stress points (like corporate tax day) suggests that reserves are still abundant enough to support a prolonged QT timeline.
The market is pricing in approximately three more rate cuts for next year, totaling around 110 basis points. However, J.P. Morgan's analysis, supported by the Fed's own dot plot, suggests only one additional cut is likely, indicating that current market pricing for easing is too aggressive.