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UK, EZ Rate Strips Shrug Off Central Bank Pushback On Cuts

STIR

Futures-implied ECB policy rates ticked a little lower Wednesday, in sympathy with the rally in longer-end rates. Euribor futures were up 1-1.5 ticks across the curve through the reds, with greens through blues 1-3 ticks lower.

  • In effect, the rate strip shrugged off most ECB commentary today which was centred around pushing back rate cut speculation (Nagel, Makhlouf, with even Lane talking down the recent decline in eurozone inflation). 2024 rate cut pricing pulled back by 1bp to 89bp. Multiple ECB speakers feature Thursday, including Lagarde.

Dynamics on the SONIA futures strip were a bit more bifurcated, with whites through reds +1 to 3 ticks, implieds flat through 2025, and greens and beyond weaker (-1 to -4 ticks).

  • There's around 6bp of hikes priced through the Feb 2024 peak, with cuts from Q1 2024 to Q1 2025 fairly steady at 90bp. Bailey wasn't overtly dovish in his comments today; we hear from BoE's Pill again on Thursday.
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