STIR: SONIA/Euribor Dec ’25 Spread Back Towards 200bp

The SONIA/Euribor Dec ’25 futures spread has moved back towards 200bp, after the recent round of widening stalled around 210bp.

• SONIA’s higher sensitivity to U.S. short-end pricing has fed into the narrowing seen over the past few sessions, with this week’s U.S. data providing dovish readthrough on net.
• UK news flow has been relatively limited this week, with BoE Deputy Governor Breeden positioning herself as slightly more dovish than Governor Bailey probably providing the highlight.
• Elsewhere, this morning’s BoE DMP survey was marginally dovish on both inflation and wages, however, progress on these fronts remains comfortably shy of levels that would equate to the BoE attaining its inflation goal
• Immediate focus is on today’s ECB decision, with a 25bp cut essentially fully discounted and ~32bp of further cuts showing through year-end.
• The Bank’s updated inflation forecasts are expected to read dovishly over the medium-term, with downside risks to the growth outlook also heightened.
• Out full ECB preview is here.
• The scope of any downside revisions here and degree of dovishness deployed in the accompanying rhetoric are set to steer market reaction.
• A dovish surprise would trigger fresh SONIA/Euribor Dec ’25 spread widening back towards 210bp. A break there would expose the year-to-date closing high at 217.5bp.
• Meanwhile, a hawkish outcome could help re-focus attention on year-to-date closing lows at 178bp, particularly if BoE matters evolve in a dovish fashion over a multi-week horizon.

Fig. 1: SONIA/Euribor December ’25 Futures Spread

Source: MNI - Market News/Bloomberg