HYBRIDS: Hybrids: Week in Review

Danske Bank “see a strong case for positioning towards a swifter pace of [ECB] policy easing”, and recommend buying the Oct-25 Euribor future at an indicative mid of 98.20. They set a soft target of 98.35 and a stop-loss of 98.10. 

• “Markets have over the past few weeks consistently priced some 48bp worth of cuts between Jun 25 and Oct 25, which implies an additional Euribor 3M drop of only 23bp beyond the June meeting”
• They note that “price pressures show broad-based signs of easing, driven by service inflation especially moving lower to 3.2%”.
• Additionally, “the ECB could remain cautious as sentiment around US-EU trade negotiations has improved, but we think that a risk-management approach favours extending the back-to-back cutting cycle for a bit longer – especially as the headwinds to growth now seem to be broadening from manufacturing towards services, wage growth is swiftly declining, and medium-term market-based inflation expectations remain below 2%”.

• +5,000 FVU5 108-11, buy through 108-10.5 post time offer at 1008:12ET, DV01 $323,500.
• The 5Y contract trades 108-10 last (+11).

• Treasury futures extended highs, drawing some sell interest after mixed ISM Services data (index & new orders lower than expected, prices paid and employ higher).
• Tsy Sep'25 10Y futures currently trades +17.5 at 111-00 (111-01 high) through resistance at 110-30 (High May 30 and high Jun 2). Next resistance at 111-05.5 (High May 9).
• Curves mixed now, off early lows: 2s10s -0.729 at 49.126, 5s30s +0.386 at 96.231
• Cross asset: Stocks pare gains (SPX eminis steady at 5981.5), Gold bouncing to 3363.45, Bbg US$ index extending lows 1208.96 (-5.0).