JPMorgan traders remain cautious after Treasury market volatility

JPMorgan’s trading desks are keeping their guard up after the US Treasury market posted its worst single-day selloff in 18 months. The culprit isn’t domestic data alone. It’s a trio of geopolitical scenarios centered on the Middle East that the bank’s analysts have been quietly modeling, each carrying vastly different implications for oil, bonds, and risk assets. The September 24 selloff sent the 10-year yield sharply higher, rattling a market that had started to price in a smoother glide path for interest rates. Strong economic data combined with escalating tensions involving Iran created the kind of toxic cocktail that makes portfolio managers reach for antacids. Three roads, three very different destinations JPMorgan’s framework breaks Middle East developments into three buckets: bullish, status quo, and bearish. The variable that ties them together is the Strait of Hormuz, the narrow chokepoint through which roughly a fifth of the world’s oil passes daily. In the bullish case, diplomatic de-escalation leads to what the bank’s analysts describe as an “everything rally.” Tensions cool, oil prices stabilize, and risk assets get the green light to push higher. Then there’s the bear...