ECB Terminal Rate Pricing Sticky Above 3.90%

ECB-dated OIS terminal pricing remains sticky above 3.90% in deposit rate terms, as participants continue to price a more than an even chance of 2 further 25bp hikes.

• This comes even after a raft of ECB speakers highlighted the Bank’s data-dependent state, remaining non-committal to hikes beyond the summer break. This included the usually hawkish ECB Governing Council member Holzmann, who subliminally alluded to a stepdown in hawkish conviction (he previously indicated that rates need to be above the 4% mark to deal with inflation).
• Bank of France Governor Villeroy stressed that market-based measures of the ECB terminal rate are excessively volatile and warned against drawing premature conclusions on that front, underscoring data-dependence.
• ECB Governing Council member Wunsch stuck to his usual hawkish line of thought, flagging the potential for rate hikes beyond September, as he highlighted the need for a sustainable drop in inflation.
• We also heard from Centeno, who stuck to his dovish leaning, pointing to interest rates that are already in restrictive territory, warning against pre-commitment when it come monetary policy decisions.
• ECB’s Rehn and Muller seemed comfortable when it came to the idea of a July hike, but were also non-committal beyond that point, the same was true for Bundesbank chief Nagel, who would only say that the Bank “may” need to raise rates beyond the summer break. Elsewhere, Vasle remains open to the idea of a hike after the summer break, but stressed data-dependence.

Note that the above table assumes a 25bp adjustment vs. the most recent €STR overnight rate levels.