EMISSIONS: EU Mid-Day Carbon Summary: EUAs, UKAs Track Weekly Losses
EUAs/UKAs Dec25 are falling today and are on track for weekly losses of about 1.3% and 3% respectively. Both open interest in the contracts have fallen to their lowest level since mid-December 2024 and late-March while prices have declined, suggesting potential stronger exiting of long holders.
- EUA DEC 25 down 0.23% at 82.24 EUR/t CO2e
- UKA DEC 25 down 0.46% at 56.57 GBP/t CO2e
- TTF Gas JAN 26 up 0.9% at 27.345 EUR/MWh
- NBP Gas JAN 26 up 1.4% at 71.02 GBp/therm
- Estoxx 50 up 0.5% at 5744.51
- FTSE 100 DEC 25 down 0% at 9738
- Intraday correlation between EUA/TTF near noon at 0.36
- Intraday correlation between EUA/UKA near noon at 0.37
- The latest Germany ETS CAP3 auction cleared at €82.25/ton CO2e, down 0.42% compared with the previous Germany auction at €82.6/ton CO2e according to EEX.
- TTF front month has recovered slightly after reaching its lowest since April 2024 at €26.80/MWh earlier this morning. A warm weather forecast has added significant pressure this week.
- EEX reported that EUAs secondary market traded volume in November 2025 fall 16% y/y and rise 116% m/m.
- EUA Dec25 options implied volatility fell to an all-time low on 4 Dec, with put open interest rising and calls declining, signalling stable expectations for price swings and caution over downside risks.
- UKA Dec25 options implied volatility as of 4 Dec fell to the lowest level since mid-November, while the call-put volatility skew turned positive for the first time since early November, reflecting stable expectations for volatility and near-term upside risks.
- The UK ETS Authority has set Phase II to run from 2031–2040 and confirmed that banking of allowances between Phases I and II will be permitted, according to its latest report.
- The UK ETS Authority will avoid major system changes in the near term as the UK and EU work toward potential ETS linking, aiming to preserve stability during negotiations, according to its latest report.
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ECB: One-year ETS2 Delay Prompts Steepening In 2s3s EUR Inflation Curve
EU member states have agreed to delay ETS2 - the new carbon market pricing scheme - by one year to 2028. The ECB had estimated that this scheme would push up 2027 inflation by ~0.3pp in its September macroeconomic projections. As such, the delay should imply a mechanical reduction of the 2027 inflation projection December, compensated almost one-for-one with an increase in the 2028 projection (which will be presented for the first time next month).
- Following the news, the 2s3s EUR inflation curve has steepened almost 5bps to 1.6bps. However, it’s notable to us that this has solely been driven by the 3-year swap (1.84% vs 1.79% yesterday), with the 2-year swap little changed at 1.83%. This may leave scope for further near-term steepening in 2s3s.
- Recent policymaker signalling suggests the ECB will avoid making monetary policy decisions (i.e. delivering another cut) solely on the basis of an ETS2-implied undershoot in 2027/2028.
- In an interview released yesterday (i.e. before the ETS2 announcement), Bank of Greece Governor Stournaras told MNI that while the 2028 projections will be a “key input” for the ECB, other data and “judgement” will play an important role. He suggested that he would be more concerned if spot inflation rates fall below target (Flash October headline was 2.1% Y/Y, core was 2.4%).
- Other relevant comments over the last few weeks:
- Kazaks (31 Oct) "The 2028 forecast will be very important to look at, to see where inflation dynamics are going, but I would not overestimate the importance,"...."Uncertainty remains high and is unlikely to disappear, so forecasts will come with a very large margin of error"
- Kocher (31 Oct): “The 2028 projection is of course a projection that is far out into the future,” ....“So putting too much weight on this projection, on this single data point, I think would not be appropriate.”
MNI: US MBA: MARKET COMPOSITE -1.9% SA THRU OCT 31 WK
- MNI: US MBA: MARKET COMPOSITE -1.9% SA THRU OCT 31 WK
EGBS: OATs The Risk Proxy Of Choice, Limiting Recovery In SPGB/OAT/PGB Fly
The SPGB/OAT/PGB butterfly is off all-time lows, but the bounce has been limited and has already started to fade as weakness in equity markets weighs on OATs in RV terms.
- OATs have become more of a risk proxy given France’s ongoing fiscal deterioration and political risk premium.
- This contrasts with the positive fiscal dynamics and sovereign rating trajectories for Spain and Portugal, and the clear differentiation continues to hamper French paper on this structure.
- Ongoing French political risks and prolonged Budget uncertainty only deepen downside risks for OATs here, particularly with no clear outcome in sight at this stage.
- Note that the latest local media reports point to French PM Lecornu being set to offer concessions to the Socialist Party in order to advance the social security budget (covered by our political risk team recently), although it is uncertain whether the offer will actually be tabled/accepted.
Fig. 1: 10-Year Spain/France Portugal Butterfly
Source: MNI - Market News/Bloomberg Finance L.P.
