EURIBOR
ERM5 has struggled to move back above 97.800 since last Wednesday’s German/EU fiscal-driven selloff in European rates. The contract is currently -2.5 ticks lower today at 97.765.
- Today’s options flow highlights that the path for near-term EUR rates remains uncertain. With the ECB now labelling policy as “meaningfully less restrictive” and the prospect of increased EU fiscal spending presenting a possible inflationary impulse, a slower pace of rate cuts in Q2 cannot be ruled out even if further US tariffs are imposed from April.
- These dynamics contrast to January this year, where tariff-related growth concerns were the primary focus and options activity was clearly skewed towards dovish plays.
- Today’s option volumes in ERM5 (including J5 and K5 options, reported by BBG) have been impressive, with over 700k traded and a call/put ratio of almost 4.00x.
- Underlying these volumes were a mix of structures: Some were targeting downside by April 11th (ERJ5 97.6875/97.62/97.5625 put fly buyer) and May 16th ( ERK5 97.50/97.4375 put spread buyer). Others looked for little change from current spot levels by June 16th (ERM5 97.6878/97.75/97.875 call fly buyer). Meanwhile, familiar dovish plays still remain of interest for those expecting a rally towards 98.000 (ERM5 97.87/98.00/98.12/98.25 call condor buyer and ERM5 97.9375/98.0625 call spread buyer).
- The ECB's next two decisions are April 17 and June 5.
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