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STIR: 2H 2024 Implied Rates Rise Back Above Pre-Oct Meeting Levels

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In a speech today, Bundesbank's Nagel notes re today's inflation data that it was important to look through monthly ups and downs, with price stability “not far off.” But services inflation remains too high, he added, with December’s ECB macroeconomic forecasts set to show rate-setters if they remain on track.

  • Neither Nagel's comments (nor Schnabel and Villeroy earlier) had much immediate impact, overshadowed by earlier notable pricing-out of ECB cuts on higher-than-expected German GDP and inflation data (and UK fiscal concerns weighing).
  • The Dec 12 ECB decision is now 20%/80% for a 50bp/25bp cut, vs 40%/60% Tuesday. The implied Sept-2025 rate is 15bp higher, at 1.93%.
  • Even with today's back-up, the path through Jan still shows 14bp in additional cuts compared with pricing the day prior to the October ECB 25bp cut.
  • But there is almost no change in the mid-2025 rate (today for June: 2.03%, vs 2.05% on Oct 16, and 1.92% yesterday). And with today's move, rates by September are looking a little higher, edging toward 2% vs closer to 1.9% pre-Oct ECB decision (see chart) - helping drive the short-end selloff and bear steepening today in the German cash bond curve.
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In a speech today, Bundesbank's Nagel notes re today's inflation data that it was important to look through monthly ups and downs, with price stability “not far off.” But services inflation remains too high, he added, with December’s ECB macroeconomic forecasts set to show rate-setters if they remain on track.

  • Neither Nagel's comments (nor Schnabel and Villeroy earlier) had much immediate impact, overshadowed by earlier notable pricing-out of ECB cuts on higher-than-expected German GDP and inflation data (and UK fiscal concerns weighing).
  • The Dec 12 ECB decision is now 20%/80% for a 50bp/25bp cut, vs 40%/60% Tuesday. The implied Sept-2025 rate is 15bp higher, at 1.93%.
  • Even with today's back-up, the path through Jan still shows 14bp in additional cuts compared with pricing the day prior to the October ECB 25bp cut.
  • But there is almost no change in the mid-2025 rate (today for June: 2.03%, vs 2.05% on Oct 16, and 1.92% yesterday). And with today's move, rates by September are looking a little higher, edging toward 2% vs closer to 1.9% pre-Oct ECB decision (see chart) - helping drive the short-end selloff and bear steepening today in the German cash bond curve.