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STIR: SONIA/Euribor Dec ’25 Spread Below 200bp

STIR
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The dovish BoE repricing seen over the past couple of sessions takes the SONIA/Euribor December ’25 (Z5) spread back below 200bp, leaving the differential set for the first close below that level since early November.

  • Soft UK economic activity data outcomes and spill over from dovish repricing in the U.S. has driven the move over lower over recent sessions, with Tuesday evening comments from BoE dovish dissenter Taylor also factoring in.
  • Next week’s UK labour market data presents the next key input for the spread.
  • Further out, the potential delivery of a BoE rate cut in February (we look for cuts in both February and May) could see the spread move lower, assuming the BoE does not deliver a hawkish cut at that juncture.
  • Conversely, firmer ECB guidance towards a run of sequential rate cuts or a more pronounced round of European economic headwinds would present widening risks.
  • RBC hold a medium conviction tightening bias for this spread. 

Fig. 1: SONIA/Euribor December ’25 (Z5) Spread

SONIAEuriborDec25170125
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The dovish BoE repricing seen over the past couple of sessions takes the SONIA/Euribor December ’25 (Z5) spread back below 200bp, leaving the differential set for the first close below that level since early November.

  • Soft UK economic activity data outcomes and spill over from dovish repricing in the U.S. has driven the move over lower over recent sessions, with Tuesday evening comments from BoE dovish dissenter Taylor also factoring in.
  • Next week’s UK labour market data presents the next key input for the spread.
  • Further out, the potential delivery of a BoE rate cut in February (we look for cuts in both February and May) could see the spread move lower, assuming the BoE does not deliver a hawkish cut at that juncture.
  • Conversely, firmer ECB guidance towards a run of sequential rate cuts or a more pronounced round of European economic headwinds would present widening risks.
  • RBC hold a medium conviction tightening bias for this spread. 

Fig. 1: SONIA/Euribor December ’25 (Z5) Spread

SONIAEuriborDec25170125