/STIR: Commerzbank On Post-ECB Dynamics

Commerzbank write “the front-end will stay volatile in sync with the data flow, and dictate the curve direction, i.e. extending the decoupling of implied vols which has been observable since the start of the year.”

• “Yet, Lagarde's reluctance to push back against forwards shifts the balance of risks for next Friday's key January HICP, where an upside surprise seems necessary to challenge ECB-dated forwards (the broker inflation forward for January is trading at 2.6% Y/Y /-0.44% M/M).”
• “In sum, this argues for steeper curves and underpinned EGB spreads near-term, but it is pretty much neutral for (long-end) duration where supply (in)digestion continues to weigh heavy.”
• “It is also notable that possible remuneration changes were not addressed and will most likely only be delivered with the conclusion of the operational framework, if at all. We therefore stay short ASW-spreads.”