STIR: J.P.Morgan Maintain Received EUR 1y1y Call
Jun-06 09:14
J.P.Morgan recommend remaining received 1y1y €STR (in addition to their received July ECB-dated OIS call).
- Their view is based on “medium term considerations”.
- They note that yesterday’s “hawkish ECB delivery has resulted in pushing out of our call for the next cut but we have a strong conviction on another cut with risk for more over the medium term.”
- Going into mote granular detail, their baseline scenario (60% probability) calls for “another ECB rate cut in September, while acknowledging non-trivial chances of a July cut. ECB then stays on hold for an extended period of time until end-2026 and we then add a gradual slope to the curve beyond that. Under this, we estimate fair value for 1y1y €STR to be around 1.70%, which is around 8bp below current levels. Essentially, we expect front-end yields to remain sticky and move in small ranges under our baseline scenario”.
- Nevertheless, they “continue to receive 1y1y €STR on medium term considerations, because we still attribute non-trivial risk to a downside macro (dovish ECB) scenario (30% probability), driven by weaker growth on the trade war and potential lower inflation. In a dovish scenario, we would expect the ECB to cut further to 1.25% by 3Q25 and then stay on hold for the next 24 months or so. We do not think that enough of this risk is currently priced into the €STR curve.”
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EGBS: Spreads Vs. Bunds Tighter In Recent Trade
May-07 09:12
Spreads to Bunds are tighter in recent trade, without a clear headline catalyst.
- BTPs, OATs, SPGBs and & PGBs with a uniform ~1bp of tightening over the last 15 minutes or so.
- The move doesn’t line up with the latest round of German fiscal speculation and has actually deepened since Bunds bounced from lows.
- Demand at the latest OAT auction was solid but doesn’t seem strong enough to account for the tightening.
GILT AUCTION RESULTS: Decent Mar-30 Gilt auction; Small Upside In Gilt Futures
May-07 09:08
Decent 4.375% Mar-30 Gilt auction, with the 0.4bp tail below the 1.0bp seen in April (though a touch above March’s 0.3bp). The bid-to-cover ratio of 3.23x was above the 3.10x average seen in the four prior auctions (including the launch).
- Lowest accepted price of 101.704 above the 101.687 pre-auction mid. The secondary market price of the Gilt is now 101.735.
- Gilt futures gain 13 ticks following the result’s publication, now at 93.01.
GILT AUCTION RESULTS: 4.375% Mar-30 Gilt
May-07 09:04
| 4.375% Mar-30 Gilt | Previous | |
| Amount | GBP4.50bln | GBP4.50bln |
| Avg yield | 3.977% | 4.142% |
| Bid-to-cover | 3.23x | 2.95x |
| Tail | 0.4bp | 1.0bp |
| Avg price | 101.721 | 101.009 |
| Low price | 101.704 | 100.963 |
| Pre-auction mid | 101.687 | 100.985 |
| Previous date | 09-Apr-25 |
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