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EURIBOR: Z4/Z6 Calendar Spread Has Unwound Early September Flattening

EURIBOR
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The ERZ4/Z6 calendar spread has fully unwound the flattening seen in early September. The spread currently trades at -83 ticks, up from a low of -105.5 ticks on September 12.

  • The spread has risen 5 ticks today, with the stronger-than-expected US ISM services data keeping the pressure on Bund futures.
  • The early September flattening came as markets priced for a more aggressive ECB easing cycle in 2025/2026, rather than in Q4 2024.
  • However, the fallout from the September ECB meeting and the shift in consensus towards a more front-loaded cutting cycle over the last two weeks has prompted a renewed steepening in Z4 spreads.
  • ECB-dated OIS price 23bps of easing through the October meeting (vs 5bps on September 20), and 54bps through year-end (vs 38bps on Sep 20).
  • Several ECB speakers are scheduled to speak tomorrow, though are unlikely to shift consensus away from an October cut at this stage.

Figure 1: ERZ4/Z6 Calendar Spread

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The ERZ4/Z6 calendar spread has fully unwound the flattening seen in early September. The spread currently trades at -83 ticks, up from a low of -105.5 ticks on September 12.

  • The spread has risen 5 ticks today, with the stronger-than-expected US ISM services data keeping the pressure on Bund futures.
  • The early September flattening came as markets priced for a more aggressive ECB easing cycle in 2025/2026, rather than in Q4 2024.
  • However, the fallout from the September ECB meeting and the shift in consensus towards a more front-loaded cutting cycle over the last two weeks has prompted a renewed steepening in Z4 spreads.
  • ECB-dated OIS price 23bps of easing through the October meeting (vs 5bps on September 20), and 54bps through year-end (vs 38bps on Sep 20).
  • Several ECB speakers are scheduled to speak tomorrow, though are unlikely to shift consensus away from an October cut at this stage.

Figure 1: ERZ4/Z6 Calendar Spread