At Any Rate European Rates: Less keen on carry, UK political noise but no signal
Jan 23, 2026
Aditya Chordia, a fixed income analyst at J.P. Morgan focused on European rates, intra-EMU spreads and macro drivers. He revisits selective carry in euro-area rates. He explains growing caution as spreads tighten and volatility rises. He discusses client positioning, euro demand trends and how UK political noise briefly moved gilts.
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Tight Spreads Driven By Lower Volatility
- Euro-area intra-EMU spreads tightened despite large front-loaded supply early in 2026.
- Declining spread volatility has driven improved risk-adjusted carry rather than wider spread compression.
Protect Tactical Carry Exposures
- Avoid broad carry exposures in euro-area interim spreads when volatility is low and valuations look tight.
- Use convex protection to guard spread carry portfolios against one-standard-deviation widening moves.
Carry Vulnerable To Small Wideners
- Even modest one-standard-deviation spread widenings would wipe out one-to-two months of carry.
- Crowded client positioning raises vulnerability to such volatility shocks.