EM LATAM CREDIT: Argentina: Current Account Deficit - Neutral

Wednesday's Europe rates/bond options flow included:

• DUQ5 107.40/107.30/106.90 broken put ladder -0.5 (receive) in 7k.
• SFIZ5 96.20/96.30cs vs 95.95/95.85ps, bought the cs for 1.5 in 4k.
• ERZ5 98.12/98.00/97.87 put ladder paper paid 1.5 on 2.5K
• ERH6 98.12/98.25/98.37/98.50 call condor vs. 98.00/97.87 put spread paper paid 0.5 on 5K, buying the call condor
• As a package:
  • 0RU5 98.37/98.81cs, bought for 7.5 in 10k.
  • 0RM5 98.25c, sold at 7.5 in 4.75k.
  • 0RU5 98.12p, sold at 11.5 in 3k.

• US TSY 5Y AUCTION: NON-COMP BIDS $114 MLN FROM $70.000 BLN TOTAL

ECB staff posted a blog today noting that the drag on consumption from mortgage rates could last “at least until 2030”. It follows ECB Chief Economist Lane on May 23 giving a presentation that included prior monetary policy tightening seeing a mean drag across six models on HICP inflation worth a little over 2.5pps in 2025 which then narrows to closer to a still large 2.0pps in 2027.

• “About a quarter of mortgages in the euro area are pure ARMs. […] The remaining lion’s share are FRMs. By design, many have been shielded from changes in the policy rate thus far.”
• “Around 10% of all mortgages are FRMs which will reprice to higher rates within the next three years. A further 20% will do so by 2030.”
• There is also “significant cross-country heterogeneity, with ARMs more prevalent in Spain and Italy and FRMs more common in France and Germany.”
• On differences in mortgage structure across the income distribution: “For households in the lowest 20% of the income distribution, 32% of mortgages are ARMs, compared with 17% for the highest quintile. This makes them more exposed to interest rate risk in the coming years than higher-income ones.”
• “By 2030, the rate paid by lower-income borrowers will still have increased more – mostly because higher-income borrowers will still hold a greater share of long-fixation-period mortgages which won’t be repriced by then.”