J.P.Morgan Recommend Going Long The Wings Of ERH4/U5/H5 Fly

J.P.Morgan note that they “expect the ECB meeting later this week to be uneventful in terms of policy rates, with the ECB endorsing “higher the longer” to prolong the impact of tighter financial conditions. “

• “The Euro area October flash PMI which continues to show signs of weakness and reinforces our expectation of the ECB to stay on hold both in terms of policy rates and balance sheet considerations.”
• “Our view remains that weak growth but still robust labour market dynamics should push inflation gradually towards the 2% target over the coming quarters and we expect the ECB to stay on hold over the coming months to allow the transmission of further tightening of financial conditions and eventually start cutting rates only by 3Q24.”
• “Current market pricing is not fully in line with our expectations of the duration of this holding pattern. We have discussed in the past that selling the body of the Mar24/Sep24/Mar25 Euribor 50:50 fly is a good way to position for this “higher for longer” dynamics getting further entrenched into the curve.”
• “Positioning for a cheapening in the body of this fly also benefits from positive slide.”
• “Overall, we recommend selling the body of the Mar24/Sep24/Mar25 Euribor fly at around -4bp.”