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Euribor strip underperforming

STIR FUTURES
  • The Euribor strip is underperforming the Eurodollar and short sterling strips this morning (despite all three moving lower). This was originally on political events over the weekend (Mattarella reelected as Italian President making it likely Draghi would continue as PM and PS winning an outright majority in the Portuguese election removing their reliance on the far-left to pass laws). The higher Spanish inflation print has helped sentiment, but has not really driven the Euribor strip to any new lows, despite helping the currency appreciate. The curve is steepening through the Whites and with Reds down 4.5-6.0 ticks. Therefore the curve flattens again so is largely unchanged through the Blues/Golds. There are now 22bp of hikes priced into the curve by end-2022.
  • The SONIA curve has seen markets marginally reduce the probablity of a February hike from 97% to 93% but is now pricing 4.9 hikes by end-2022, up from 4.75 at Friday's close. The largest move in the SONIA strip has been in the Sep-22 contract which has moved 2.5 ticks on the day.
  • The Eurodollar curve is up to 3.5 ticks lower, with the biggest moves seen in the Jun22-Dec22 area. Pricing for a March hike is little changed at 30.8bp (so 25bp fully priced with a 23% probability of a 50bp hike) and we now have 4.9 hikes priced by year-end, up from about 4.75.
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