CREDIT SUPPLY: Iberdrola (IBESM Baa1/BBB+/A-): Final Terms

• -2,500 TUM5 104-06.62, sell through 108-75 post time bid at 0738:00ET, DV01 $92,000. The 2Y contract trades 104-07.38 last.

Wage negotiations in the public sector (federal and municipal level, impacting 2.7mln employees, ~6% of total employment) ended with a two-stage salary increase of 3% or a minimum of E110/month retroactively starting on April 1, and a further 2.8% starting May 1 2026, alongside some shift allowance increases and a softening of the maximum working hours in a 27-month contract maturity in March 2027.

• UBS calculates that the public sector wage deal equates to average annual wage growth in the sector of 2.8% in the next two years. We note that this is higher than:
  1. average Y/Y services sector negotiated wage growth 2011-19 (2.4%)
  2. the Bundesbank's forecast for German negotiated wage growth in 2025 (2.5%)
  3. the Bundesbank's forecast for German HICP (2.4% '25, 2.1% '26).
• However, the figures still mark a slower pace of wage growth than seen in recent quarters (services sector excl. one-offs standing at 4.7% Y/Y in March according to Destatis data, see chart below).
• Thus, the takeaway from the deal is that it appears to underpin the ECB's assumption of Eurozone wage growth tapering off going forward - but for the Bundesbank's 2025 forecast to be met, other deals this year have to come in lower than this one, and this agreement remains above pre-pandemic norms.

• ERZ5 99.25/99.75 call spread, now trading at 2.25. 20k sold all day at 2.5 down to 2.25
• ERK5 98.125/98.25 call spread, bought for 1.25 in 15k.
• ERM5 98.125/98.25 call spread has traded in 30k at 1.25. Paper has both bought and sold this structure.