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The ECB Is Easing, Just Not Saying So, Initiate ERZ4/Z5 Flatteners

EURIBOR
HomepageEuropean Central Bank (ECB) Market NewsBulletMarketsFixed Income Bullets

Late on Friday Goldman Sachs noted that “on face value, the ECB meeting was much more hawkish than we expected. But we do think that Lagarde outlined an informal easing bias during the press conference that continues to point to further easing.”

  • “There were also hints that projection meetings allows for sufficient data accumulation for further policy adjustment, and so we continue to think that a quarterly pace of cuts is the right baseline.”
  • “With markets pricing 33bp to year-end, we think yields will struggle to rise from current levels, and that the hawkish formal guidance lowers the bar for upcoming ECB speak to rebalance the debate a little more dovishly.”
  • “But with a long wait until definitive data on a September cut, we expect incremental domestic data and possibly US spillovers to catalyse more curve flattening – we recommend ERZ4Z5 flatteners (at -52.5bp, targeting -75bp, stop -40bp).”
Fig. 1: Euribor Z4/Z5 Spread

source: MNI - Market News/Bloomberg

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Late on Friday Goldman Sachs noted that “on face value, the ECB meeting was much more hawkish than we expected. But we do think that Lagarde outlined an informal easing bias during the press conference that continues to point to further easing.”

  • “There were also hints that projection meetings allows for sufficient data accumulation for further policy adjustment, and so we continue to think that a quarterly pace of cuts is the right baseline.”
  • “With markets pricing 33bp to year-end, we think yields will struggle to rise from current levels, and that the hawkish formal guidance lowers the bar for upcoming ECB speak to rebalance the debate a little more dovishly.”
  • “But with a long wait until definitive data on a September cut, we expect incremental domestic data and possibly US spillovers to catalyse more curve flattening – we recommend ERZ4Z5 flatteners (at -52.5bp, targeting -75bp, stop -40bp).”
Fig. 1: Euribor Z4/Z5 Spread

source: MNI - Market News/Bloomberg