STIR: Post NFP Reaction Illustrative Of Broader ESTR vs SOFR Correlation Changes
This afternoon’s reaction in EUR rates to the US data releases has been illustrative of a broader trend since the US election – namely a breakdown in correlation between one-day SOFR and ESTR swap rate changes. Eurozone economic conditions have diverged from the US up to and since November, while US tariff policies have generally been expected to have opposite effects on relative ECB/Fed policy stances (net dovish for the ECB, cautious/hawkish for the Fed).
- While 2-year SOFR swap rates remain up over 8bps today (despite the details of the NFP report not being as strong as headline figures suggest), 2-year ESTR swap rates are down 2bps.
- Since the US election, a regression of one day 2-year SOFR swap changes on ESTR swap changes gives an R-squared of just 0.0591, well below the 0.5105 seen between the start of 2023 and just before the election.
- Euribor futures are +2.0 to +3.5 ticks through the blues, operating close to session highs. A block purchase in ERM6 helped the space further away from post-data lows around an hour ago.
- ECB’s Wunsch provided similar comments to Handelsblatt as he did to the MNI Policy Team (our interview was released earlier today), while our latest ECB Sources piece was also released this afternoon.
- Tomorrow’s regional calendar includes May industrial production data from France and Spain, alongside retail sales from Italy. Not usually market movers, but important hard data to gauge economic momentum in Q2.
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FED: Atlanta's Bostic Sticks To 1 Cut View For 2025, "Ways To Go" On Inflation
Atlanta Fed President Bostic on Tuesday reiterated his view expressed in the March Dot Plot that he expects one rate cut later this year - "I don’t have any reason to think that my outlook is going to change radically... a lot of it will depend on how the uncertainty resolves itself. I’m going to stay diligent and take things on as they happen."
- That said, tariffs could boost inflation in the near-term - with the persistence vs one-off impact of tariffs still an open debate - and in any case overall PCE remains above target so "there's still a ways to go in terms of the progress we're going to need to see". He noted local business contacts may be putting off price increases until later in the summer.
- He was speaking to reporters after the release of a new essay, "Pervasive Uncertainty Calls for a Patient Policy Stance" (link) - the title of which basically says it all. As he writes, "As of April, we had not yet seen clear signs of tariffs boosting inflation, though research suggests we might see upward pressure on prices over the coming weeks."
- He also notes in the essay, "Fiscal, tax, and regulatory policy are all likely to see big changes in the coming months as Congress works through its budget processes and the Trump Administration continues to implement its agenda. In each area, one could generate a list of questions as long as the set I just offered about trade. For now, neither I nor anyone has clear answers for any of these questions."
PIPELINE: Corporate Bond Update
- Date $MM Issuer (Priced *, Launch #)
- 06/03 $3B #AfDB: $2B WNG 3Y SOFR+33, $1B WNG 10Y SOFR+64
- 06/03 $2B #Prov. of Ontario: 10Y SOFR+95
- 06/03 $1.5B *CPPIB 5Y SOFR+54
- 06/03 $1.25B *Kommuninvest +3Y SOFR+39
- 06/03 $1B #Hong Kong 5Y Green +50
- 06/03 $500M IADB 2030 tap SOFR+40
- 06/03 $500M Autodesk WNG 10Y +120a
- 06/03 $Benchmark Bank of NY Mellon 3NC2 +75a, 3NC2 SOFR, 11NC10 +100a
- 06/03 $Benchmark GE Healthcare +5Y +110a, 10Y +135a
- 06/03 $Benchmark NAB 3Y +65a, 3Y SOFR, 5Y +75a
- 06/03 $Benchmark Corebridge 5Y +100a
- Expected Wednesday:
- 06/04 $Benchmark IDA 5Y SOFR+46a
- 06/04 $Benchmark British Colombia 10Y SOFR+98a
