SWAPS: EUR Rate Repricing Driven By Real Yield Component
As highlighted at the start of the week, recent hawkish repricing in EUR rates has been driven by the real yield component, with inflation swap pricing little changed (and in some cases even slightly lower) over the last five sessions.
- This points to a potential reassessment of Euro area neutral rate expectations, and is consistent with underperformance of the 5-year tenor on the 2s5s10s fly in German bonds and in the Euro swap space (e.g. see here).
- The ECB’s characterisation of the growth outlook will be a point of interest at next week’s press conference, guided by the updated set of macroeconomic projections. President Lagarde may finally describe risks around the growth outlook as “balanced”, but will likely stress a high degree of uncertainty.
- Danske Bank believe the ECB will be comfortable with rising neutral rate expectations, and “maintain our paying bias in the short end and look to re-enter if interest rates fall again”.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
SOFR: Long Setting Most Prominent In Futures On Tuesday
OI data shows a clear skew towards net long setting as SOFR futures rallied in the wake of the soft weekly ADP employment data on Tuesday. Only limited instances of net short cover were seen through the blues.
- Still, akin to what was seen in the long end, limited net OI swings may point to low conviction given the lack of market familiarity with the weekly ADP readings and questions surrounding crossover with official labour market data.
| 11-Nov-25 | 10-Nov-25 | Daily OI Change |
| Daily OI Change In Packs |
SFRU5 | 1,363,554 | 1,364,053 | -499 | Whites | +32,362 |
SFRZ5 | 1,435,679 | 1,417,618 | +18,061 | Reds | +15,498 |
SFRH6 | 1,216,739 | 1,213,147 | +3,592 | Greens | +2,736 |
SFRM6 | 1,108,661 | 1,097,453 | +11,208 | Blues | +1,517 |
SFRU6 | 1,111,865 | 1,104,872 | +6,993 |
|
|
SFRZ6 | 1,194,466 | 1,196,404 | -1,938 |
|
|
SFRH7 | 837,646 | 830,816 | +6,830 |
|
|
SFRM7 | 820,498 | 816,885 | +3,613 |
|
|
SFRU7 | 766,722 | 764,859 | +1,863 |
|
|
SFRZ7 | 806,859 | 804,365 | +2,494 |
|
|
SFRH8 | 430,004 | 429,602 | +402 |
|
|
SFRM8 | 408,577 | 410,600 | -2,023 |
|
|
SFRU8 | 352,291 | 356,268 | -3,977 |
|
|
SFRZ8 | 330,459 | 330,641 | -182 |
|
|
SFRH9 | 206,732 | 201,849 | +4,883 |
|
|
SFRM9 | 187,098 | 186,305 | +793 |
|
|
OUTLOOK: Price Signal Summary - USDJPY Continues To Appreciate
- In FX, EURUSD traded higher Tuesday. The pair has breached an initial important resistance at 1.1584, the 20-day EMA. The break paves the way for an extension of the corrective cycle, towards the 50-day EMA, at 1.1623. A clear break of the 50-day average would highlight a potentially stronger bull cycle. On the downside, a reversal would refocus attention on the bear trigger at 1.1469, the Nov 5 low. Clearance of this level resumes the downtrend.
- The trend outlook in GBPUSD remains bearish and recent gains still appear corrective. The move higher has allowed an oversold trend condition to unwind. Firm short-term resistance to watch is at the 20-day EMA, at 1.3223. Clearance of this hurdle would signal scope for an extension towards the 50-day EMA, at 1.3327. For bears, a resumption of the downtrend would open 1.2971, a 1.382 projection of the Sep 17 - 25 - Oct 1 price swing. The trend structure in USDJPY remains bullish and this week’s gains reinforce current conditions. Today’s climb has delivered a print above 154.48, the Nov 4 high and bull trigger. This confirms a resumption of the uptrend and maintains the price sequence of higher highs and higher lows. Sights are on 155.53, a 2.00 projection of the Sep 17 - 26 - Oct 1 price swing. Initial support to watch lies at 152.84, the 20-day EMA.
STIR: Fed Rates Mostly Still Reflect Soft Weekly ADP
- Fed Funds implied rates have pared most of yesterday’s reaction to soft weekly ADP data specifically for next month's FOMC meeting, although the dovish impact is held further out.
- Cumulative cuts from 3.87% effective: 15.5bp Dec, 26bp Jan, 37bp Mar, 44bp Apr and 58bp Jun.
- Some notable earlier Fed Funds flow: FFF6/G6 paper paid -9.5 on 22.5K, ~24K trades there all day.
- SOFR futures are 1-2 ticks lower on the day, with the implied yield at
- The SOFR implied terminal yield of 3.08% (H7, -1.5bp) holds a sizeable pullback from last week’s multi-month high of 3.16% prior to a softening in a succession of lower tier labor releases.
