Post-ECB Pricing Settles Down, Market Unwilling To Fully Price More Than One Further Hike

ECB-dated OIS operates within touching distance of what was seen late yesterday, after the market trimmed terminal rate expectations on the back of the Bank stepping down it’s hiking pace to 25bp (even though President Lagarde stressed that the Bank has more work to do and specifically referenced the plural “meetings” in the press conference and statement), with rhetoric surrounding the BLS and transmission of monetary policy aiding the direction of travel.

• The latest round of U.S. regional banking sector worry would have added further pressure to the space, at the margins, although the broader risk-off moves surrounding the latest round of worry have moderated from extremes.
• Just over 20bp of tightening is priced for next month’s ECB meeting, with terminal €STR pricing at ~3.55% (just over 3.65% in deposit rate terms), representing a cumulative ~40bp of tightening from current interest rate levels.
• A quick recap of a couple of post-meeting sources pieces points to little fight on the part of the hawks when it came to yesterday’s step down to a +25bp hiking increment (BBG), with the APP announcement and signal for further tightening placating the majority of hawkish concerns. Staunch hawk Holzmann (non-voter yesterday) appeared to be the only dissenter re: the slowing in hiking pace (RTRS), with some on the Governing Council still seeing the need for 2-3 further hikes. On the QT side, the RTRS sources noted that “policymakers at Thursday's meeting were unanimous that the ECB should not sell bonds under its APP even after it stops replacing those that mature in July.”