/STIRS: Commerzbank Weigh In On ECB Pricing & German ASWs

Commerzbank write “a likely decline in underlying euro area inflation should come on the heels of tomorrow's likely shrinking euro area Q4 GDP and underperforming German growth.”

• “As such, the data should provide quite a bit of leeway for the ECB, even if the still wide spread between 5y5y € ILS and the SPF median signals a substantial inflation risk premium.”
• “Together with the open-minded ECB rhetoric, this adds conviction to the aggressive depo path discounted by €STR-forwards.”
• “Overall, current ECB rhetoric and the upcoming data seem to argue against an imminent bearish reversal of rate cut expectations, also given a largely depleted calendar at the start of the week. The main risk could be a reluctant Fed.”
• “The EGB spread tightening thus looks set to extend, despite the bold auction schedule this week, while backflows provide support. The "all clear" for ECB rate cuts, further cheapening of repo levels and absence of hints on remuneration changes at last week's meeting also seem to drive Bund ASW tighter still, with Schatz spreads having taking out 15bp vs. €STR and underperforming vs. the ASW structure and Bund also hitting new lows below 44bp vs. 6m Euribor.”