STIR: SONIA/Euribor Dec ’25 Spread Hovers Above ’25 Lows

The is a risk of an extension of the recent narrowing in SONIA/Euribor spreads.

• The vote split at next week’s BoE decision will be eyed after February’s dovish outcome, while UK fiscal considerations continue to generate interest after the erosion of already limited headspace.
• Further out, continued downside surprises to UK economic growth, or any other trigger for a more activist BoE, are also eyed.
• Conversely, a more aggressive U.S. trade tariff stance could promote spread widening, assuming the EU remains at greater risk of related sanctions than the UK.
• The SONIA/Euribor December ’25 futures spread trades just above ’25 lows, with the recent unwind of ECB rate cut premium, aided by German & EU fiscal developments, narrowing the spread month-to-date.
• The slightly more hawkish-than-expected ECB statement also factored into the move, with the Bank underscoring its data dependent and meeting-by-meeting stance through the entirety of its post-decision communique and in the time since.
• BoE cuts priced through year-end has oscillated between 50-60bp in recent sessions, with little to shift the BoE’s preference for gradual rate cuts.
• Spread last ~180bp, initial support at cycle closing lows (178bp), followed by the October ’24 closing high (171.5bp).
• The first major upside area of interest is the February closing high (197.5bp).

Fig. 1: SONIA/Euribor December ’25 Futures Spread