FED: US TSY 8W BILL AUCTION: HIGH 3.630%(ALLOT 63.99%)

• +11,610 FVH6 109-05.75, post time offer at 1124:43ET, DV01 $508,000.
• The 5Y contract trades 109-05.5 last (-4)

• +35,000 TYG6 114 calls, 2
• +12,000 FVG6 109 puts, 11.5 vs. 109-05.5
• 3,500 USG6 114/116 strangles, 54-55

Euribor futures have been relatively resilient considering the recent pullback in SOFR counterparts. ERZ6 is +3.5 ticks at 97.925, just half a tick off session highs. Today’s softer-than-expected German state-level/national inflation has driven the dovish repricing in EUR STIRs, with markets looking through potential seasonality concerns and still-sticky domestic services inflation.

• ERZ6 has now recovered 14 ticks from the December 10 low, with the prior breakdown level of 97.950 (Nov 17 and Dec 2 low) the first resistance to monitor.
• ECB-dated OIS are up to 4bps more dovish on the session, removing any implied probability of a rate hike in 2026. There are 4bps of easing priced through September.
• The bar to an ECB rate change in either direction remains high, in our view. Our tracking of a one-tenth downside surprise to December headline HICP isn’t material enough to change that narrative.
• However, Q1 Eurozone inflation data will be important to monitor. A disinflationary set of start-of-year services price resets, taken alongside subdued core goods inflation pressures, may embolden more dovish members of the Governing Council to keep the door open to further easing.