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STIR: Significant SOFR Underperformance Remains Despite Shift Off Lows

STIR
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  • SOFR futures hold an overnight shift off lows but still see implied yields up to 10bps higher on the day through the greens and larger increases beyond following further networks calling the election in Trump’s favor.  
  • The day’s sell-off is exaggerated by yesterday’s second half rally, which at the time reversed much of the hawkish implications from a strong ISM services report.
  • However, even taking that into account and looking at changes since around the European close, SOFR futures still heavily underperform with yields some 4bps higher – see chart.
  • Euribor sees the largest rally, with 2H25 implied yields 16bps lower on the aforementioned tariffs threat.
  • The rally in UK rates is more restrained, with yields as much as 7bps lower through late 2025/early2026 contracts. There’s a clear reluctance to move too far away from yesterday’s fresh cycle highs for terminal rate expectations at just under 4% for almost 20bps above pre-Budget levels (in firm contrast to Euribor implied terminal rates back below 2%). 

  • There could be some stickiness here before the BoE decision on Thursday (MNI Preview here). 

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  • SOFR futures hold an overnight shift off lows but still see implied yields up to 10bps higher on the day through the greens and larger increases beyond following further networks calling the election in Trump’s favor.  
  • The day’s sell-off is exaggerated by yesterday’s second half rally, which at the time reversed much of the hawkish implications from a strong ISM services report.
  • However, even taking that into account and looking at changes since around the European close, SOFR futures still heavily underperform with yields some 4bps higher – see chart.
  • Euribor sees the largest rally, with 2H25 implied yields 16bps lower on the aforementioned tariffs threat.
  • The rally in UK rates is more restrained, with yields as much as 7bps lower through late 2025/early2026 contracts. There’s a clear reluctance to move too far away from yesterday’s fresh cycle highs for terminal rate expectations at just under 4% for almost 20bps above pre-Budget levels (in firm contrast to Euribor implied terminal rates back below 2%). 

  • There could be some stickiness here before the BoE decision on Thursday (MNI Preview here).