SARON Futures Off Dovish Extremes, Focus On Medium-Term Inflation worry

SARON futures run 6.5-15bp richer through the reds, bull steepening, after being knocked back from their post-SNB decision bests (which came as pricing surrounding the odds of a 50bp hike at today’s decision were unwound).

• The move away from richest levels of the session came on the back of SNB President Jordan underscoring the Bank’s concern re: the medium-term inflation outlook via the post-meeting press conference and with more focus placed on the Bank’s mark higher in its ’24 & ’25 CPI forecasts, with those projections now above the tolerance band. The peak implied SARON rate on the strip sits at 2.065% (Mar ’24 contract), ~35bp above prevailing hike-adjusted SARON levels.
• Pictet have noted that “in all, even if inflation in Switzerland is closer to the central bank’s inflation target, the SNB sounded worried about the medium-term inflation outlook. Like the ECB last week, it revised up its inflation forecasts for 2024 and 2025, suggesting that high interest rates could persist, even in Switzerland. Today’s meeting has increased meaningfully the risk of a further rate hike in September.”