EM CEEMEA CREDIT: BOUSUK: PRICED new issue deal

Although the market is currently focused on how many more cuts the ECB will deliver and the speed in which it reaches the terminal rate, attention will soon shift to assessing whether rate hikes are plausible in 2026. Some analysts have already pencilled hikes into their baseline projections, e.g. UBS see 50bps of hikes in late 2026.

• The ER H6 / Z6 spread is currently 16.5 ticks, off the April 9 high of 21.0 ticks. These levels crudely imply a ~65% probability of an ECB hike between Q2-Q4 2026 (for now abstracting from the liquidity/credit component embedded within Euribor futures).
• While it is reasonable to assume a 2026 hike is more likely than a cut at this stage, current pricing may still be considered too hawkish, given uncertainty around whether higher trade barriers and German fiscal spending will be inflationary in the medium-term.
• On the first channel, higher trade barriers may not culminate in higher Eurozone inflation if (1) Chinese disinflationary trade diversion is material, (2) EU retaliation against the US is limited and (3) the real effective Euro holds onto or extends recent strength.
• Meanwhile, the hawkish-leaning Bundesbank President Nagel suggested on April 23 that the German fiscal package will not be inflationary. Analyst forecasts submitted to BBG also do not yet incorporate a material uptick in 2026 German inflation.
• The current Euribor-implied terminal rate is 1.66%, indicated by the H6 contract. That’s off the recent dovish closing extreme of 1.58% on April 22, but still well above the 1.94% just before the April 2 US tariff announcement and the 2.16% following the German fiscal announcement/March ECB decision.

{US} STIR: Modest dovish adjustments in Fed pricing after the 10:00 NY data, with an uptick in the quits rate and downtick in the layoff rate within the JOLTS jobs data outweighed by the softer-than-expected job openings release and weak consumer confidence report outlined elsewhere (a reminder that Tsy Secretary Bessent was the latest to push back against drawing major economic inferences from survey data earlier today).

• The move was two-way in nature, with initial dovish repricing faded before establishing itself.
• That leaves pricing for meetings through the end of ’25 little changed to 2bp more dovish vs. pre-data levels.
• 2bp of easing showing for May, 16bp through June, 38bp through July, 60bp through September, 78bp through October and 96bp through December.

The JOLTS report saw a second month with lower-than-expected job openings, and this time by a greater extent in March. However, layoffs fell to their lowest since June and quit rates surprisingly inched higher, the latter still low historically but up nearly 0.2pps from November lows. These two conflicting findings should be viewed in the context of the vacancy to unemployed rate still being higher relatively than quit rates. 

• Job openings fell to 7192k (sa, cons 7500k) in March after a downward revised 7480k (initial 7568k) in Feb.
• Ratio of openings to unemployed also fell to 1.02 after a downward revised 1.06 in Feb, inching below the 1.03 in September for technically the lowest since Apr 2021.
• It had averaged 1.1 through Jun 2024-Feb, between the 1.2 in 2019 and 1.0 in 2017-18.
• Hire rates continued to plateau in March, with an overall rate at 3.39% having averaged 3.38% in an extremely narrow range since October. This remains below the 3.9% averaged in 2019 and 3.8% averaged in 2017-18.
• Layoffs fell to 1558k in March from 1780k for their lowest since Jun 2024. Government layoffs edged higher to 107k after 100k in Feb (averaged 83k in 2024), indicating only modest attrition compared to more ‘normal’ times whilst federal layoffs fell to 8k after 19k (averaged 6k in 2024).
• Quits rates meanwhile saw what to us was a surprising increase albeit it one exaggerated by rounding, lifting to 2.09% after two months at 2.05/2.04%. It’s the highest quit rate since Jul 2024, having lifted off a recent low of 1.91 in Nov, although are still low historically vs 2.3% in 2019 and 2.2% in 2017-18.
• The increase in quits was driven by the private sector (2.25 to 2.32%) whilst total government quits held at a rounded 0.8% for a fifth consecutive month. Within the latter, federal quits ticks a tenth higher to 0.5% after three months at 0.4%. That included February being revised up from 0.3% initially at what had bene a fresh low since late 2016.