SECURITY: Israel Delivers Response To Ceasefire Proposal Ahead Of Cairo Talks

ERM5 has struggled to move back above 97.800 since last Wednesday’s German/EU fiscal-driven selloff in European rates. The contract is currently -2.5 ticks lower today at 97.765. 

• Today’s options flow highlights that the path for near-term EUR rates remains uncertain. With the ECB now labelling policy as “meaningfully less restrictive” and the prospect of increased EU fiscal spending presenting a possible inflationary impulse, a slower pace of rate cuts in Q2 cannot be ruled out even if further US tariffs are imposed from April.
• These dynamics contrast to January this year, where tariff-related growth concerns were the primary focus and options activity was clearly skewed towards dovish plays. 
• Today’s option volumes in ERM5 (including J5 and K5 options, reported by BBG) have been impressive, with over 700k traded and a call/put ratio of almost 4.00x.
• Underlying these volumes were a mix of structures: Some were targeting downside by April 11th (ERJ5 97.6875/97.62/97.5625 put fly buyer) and May 16th ( ERK5 97.50/97.4375 put spread buyer). Others looked for little change from current spot levels by June 16th (ERM5 97.6878/97.75/97.875 call fly buyer). Meanwhile, familiar dovish plays still remain of interest for those expecting a rally towards 98.000 (ERM5 97.87/98.00/98.12/98.25 call condor buyer and ERM5 97.9375/98.0625 call spread buyer).
• The ECB's next two decisions are April 17 and June 5.

Gilts following cues from Tsys/broader cross-market swings, with a recovery from session lows fading, leaving benchmark futures ~10 ticks off session lows.

• The bearish technical backdrop in the contract remains intact.
• Little in the way of domestic drivers evident since this morning’s gilt auction and DMO provisional issuance calendar for the initial weeks of FY25/26.
• Yields 3.5-5.5bp higher across the curve, flattening seen.
• 10s ~4.5bp wider vs. Bunds on the day, last ~182.5bp. This comes after the early tightening failed to test the support cluster at 175/174.5bp.
• BoE-dated OIS shows ~53bp of cuts through year end, ~5bp less dovish on the day.
• The next 25bp cut isn’t quite fully priced through June (~24.5bp of cuts showing over that horizon).
• SONIA futures flat to -7.0.
• Nothing of note on the UK calendar until Friday’s monthly economic activity data, with the BoE in its pre-meeting quiet period.

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