ECB Pricing A Touch Firmer & Steeper

Global market dynamics (European equities bid, Bunds back from richest levels of the week and firmer natural gas prices in Europe) help ECB-dated OIS to firm/steepen on Tuesday.

• ECB-dated OIS is little changed to ~5bp higher as a result, with only ~2bp of tightening showing for the remainder of the cycle and a relatively familiar cutting cycle priced.
• Today's move has acted as a counter to what we saw yesterday.
• ECB speak from GC member Villeroy once again affirmed his feeling re: terminal policy rate levels already being attained, while stressing the need for rates to plateau for a sufficiently long period. He also underscored the need to stay vigilant re: the inflationary risk from oil prices owing to the Israel-Hamas conflict, while pointing to a clear downward trend in inflation. As such, he stressed there was no need to adjust the Bank’s ’25 inflation projection at present.
• Elsewhere, GC member Holzmann (hawk) noted that the rate hiking cycle may have ended if “everything goes well,” but did note that “if additional shocks come, and if the information we have proves to be incorrect, we may have to hike another time or perhaps two times.”