HYBRIDS: Hybrids - Movers

The Bundesbank gives some views on the future development of the ECB's balance sheet as well as the setup of future structured operations as part of a broader regular monthly report. The below is translated from German with MNI emphasis in bold. The still open nature of structural considerations shouldn't be a surprise (see comments from Cipollone below) although the Bundesbank hints at perhaps an even longer wait to see them. 

• "Operations are to be introduced in the future that will contribute significantly to meeting the structural liquidity needs of the banking system. In addition to separate structural longer-term refinancing operations, this will also include a structural portfolio. The design of these structural operations is currently still open. From the Bundesbank's point of view, appropriately designed structural refinancing operations will be able to cover the majority of the banking system's structural liquidity needs in the future. However, such operations are likely to be introduced at a later date, as the banking system is expected to have a structural liquidity surplus vis-à-vis the Eurosystem for several years to come. The Bundesbank expects structural refinancing operations to be introduced before a structural portfolio is established."
• "In the coming years, the Eurosystem’s balance sheet is expected to shrink significantly, mainly because the securities purchased by the Eurosystem since 2014 under its monetary policy asset purchase programs will gradually mature, while demand in the regular monetary policy refinancing operations is likely to increase slowly at first from a very low level. The Eurosystem estimates excess liquidity at around €1,500 billion at the end of 2027 (with monetary policy securities holdings still at around €2,800 billion). However, future excess liquidity resulting from the aggregate demand of monetary policy counterparties for main refinancing operations and longer-term refinancing operations is likely to be lower."

• ECB's Cipollone told MNI at an event in February that the ECB will reassess its position on the structural portfolio in 2026 as liquidity needs are currently fulfilled by the legacy portfolios. When asked his preference on weights between structural bond portfolio and structural refi operations in the future, "my personal preference is we should provide banks with sufficient liquidity in a structural way so that they have enough reserves to face unforeseen volatility, but also reserves they can count on to extend credit to the economy."
• For the latest look at ECB balance sheet developments, see our weekly tracker, here. 

Little net reaction in front-end ECB-implied rates to the latest report from Handelsblatt, which says the EC is prepared to accept a flat 10% US tariff rate under certain conditions. Such an outcome would be broadly in line with the baseline tariff assumptions in the ECB’s June projections. These projections were also conditioned on a market curve that had another 25bp cut priced in - consistent with current OIS market pricing. 

• From the June projections: “The baseline assumes…US tariffs for goods imports would increase from almost zero by 10 percentage points for all countries – except China, for which these would increase by about 20 percentage points to an effective tariff rate of approximately 40% (when measured for both goods and services). Additionally, it is assumed that the EU does not retaliate, while China retaliates symmetrically”.
• In an interview with Reuters released this morning, VP de Guindos noted that “The final outcome in trade negotiations is by far the most relevant factor of uncertainty that we considered in our projections, which are the basis for our monetary policy decisions”.

Equity Option Expiry in Notional Term for Friday:

• SPX: $3.41bn vs $3.31T last Wednesday.
• NDX: $121.13bn vs $117.51bn.
• Amazon: $20.72bn vs $19.66bn.
• Apple: $24.99bn vs $24.26bn.
• SX5E: €325.63bn vs €328.50bn.
• SX7E: €21.19bn vs €21.16bn.
• DAX: €85.30bn vs €83.88bn.
• UKX: £26.71bn vs £26.25bn.

Adding:

• CAC: €4.51bn.
• Lloyds: £3.05bn.