SARON Firmer after SNB Sticks To 25bp Hike Trajectory

SARON futures turn bid on the back of the SNB’s decision to lift rates by 25bp, as the unwinding of any pricing related to the potential for a 50bp step (which was roughly 50% priced ahead of the decision) is removed.

• That leaves the contracts 11-14bp richer on the day, with the SSYM3/U3 spread 1bp flatter and the U3/Z3 spread 3bp steeper. The Mar ’24 contract has the highest implied SARON rate on the strip, which sits at 2.015% at present, implying a little over 30bp of further tightening in the cycle (when adjusting the latest fixing for today’s hike).
• The Bank left the door open to further tightening, reiterating that “it cannot be ruled out that additional rises in the SNB policy rate will be necessary to ensure price stability over the medium term,” as it warned that inflationary pressures have “increased again over the medium term.”
• The latter point saw the Bank mark it’s ’24 & ’25 inflation projections a little higher (with a 2.3% peak seen in Q324), after an adjustment lower in its ’23 projections (flagging a “significant” decline in inflation in recent months), as it pointed to second-round effects.
• Earlier this morning we saw the Bank’s Financial Stability Report highlight the need for revised liquidity requirements for the banking sector in the wake of the Credit Suisse saga.

Fig. 1: SNB Inflation Projections