ECB Pricing Flattens Post-Hike

The front end of the ECB-dated OIS strip adjusts to the ECB’s decision to hike rates by 25bp (market pricing gave ~70% chances of a hike pre-decision, while the BBG survey was tilted towards no move).

• The deployment of the following passage has resulted in the classic ‘dovish hike’ price action in wider markets: “Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target. The Governing Council’s future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary.”
• Still, terminal policy rate pricing does nudge up to ~4.05% vs. ~4.00% pre-decision, with the closure of received positions probably aiding the move.
• The strip has flattened post-decision, with contracts 1-8bp firmer vs. pre-decision levels.