BELGIUM T-BILL AUCTION PREVIEW: On offer next week

Overnight SOFR & Treasury options appear mixed on lighter volumes compared to the heavy upside call structure buying over the last few sessions. Underlying futures steady to mixed, curves flatter with short end rates weaker. Projected rate cuts through mid-2025 steady to mixed vs. late Tuesday levels (*) as follows: Mar'25 at -0.5bp (-0.7bp), May'25 at -6.4bp (-7.6bp), Jun'25 at -19.6bp (-21.1bp), Jul'25 at -27.6bp (-29.1bp).

• SOFR Options:
  • 17,000 0QK5 96.62/96.93 call spds ref 96.295
  • 5,000 SFRZ5 95.50/95.87 put spds ref 96.175
  • 2,500 SFRZ5 96.12/96.37/96.62 put flys
  • 6,500 0QH5 95.93/96.06/96.18 put flys ref 96.25 to -.235
  • 4,000 2QJ5 96.25/96.50/96.62 broken call flys ref 96.27
• Treasury Options:
  • +30,000 TYJ5 109/109.5 put spds, 9 ref 110-11.5
  • over 5,500 TYJ5 110.5 calls, 42 last ref 110-12
  • over 12,200 TYK5 110.5 calls ref 110-12
  • 3,100 TYK5 106/108 put spds vs. TYM5 105/107 put spd spds
  • 2,000 FVK5 106.75/107.5/108 broken call flys ref 107-12.75

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Time For Some Progress On Services?

• The Eurozone February flash inflation round is spread across three days, with Spain kicking off proceedings on Thursday (Feb 27), before France, Italy and Germany report figures on Friday (Feb 28). Together, the four major economies should give a good read on price pressures ahead of the Eurozone-wide print on Monday (Mar 3).
• There is not yet a Bloomberg consensus for the Eurozone data, but analyst forecasts compiled by MNI point to a pullback in headline and core inflation to 2.3% (vs 2.5% prior) and 2.6% (vs 2.7% prior) respectively.
• The ECB’s confidence in the 2025 inflation outlook has been predicated on an easing of labour costs which should filter through into lower services inflation readings. In a recent hawkish interview with the FT, ECB Executive Board member Schnabel suggested services inflation “should start to come down in February”. However, analysts only expect a moderate deceleration to 3.8% Y/Y from 3.9% prior.
• The February flash inflation round shouldn’t impact market pricing for the ECB’s March 6 decision, with a 25bp fully priced well embedded into analyst (and presumably policymaker) consensus. However, a lack of progress on core metrics may still leave Q2 pricing vulnerable if hawks’ (led by Schnabel) bargain for a more cautious approach to future easing after a March cut.

Jorge Liboreiro at Euronews posts on X: "The expected meeting between [European Commission] High Representative [for Foreign Affairs and Security Policy] Kaja Kallas and [US] Secretary of State Marco Rubio has been cancelled, Euronews has learned. Kallas is already in Washington. She will meet with representatives from Congress and Senate and speak at two different events."

• The missed meeting will come as a further concern for the EU as it fears being shut out of talks involving the US and Russia on ending the war in Ukraine.
• Rubio missed a meeting of EU foreign ministers in late January shortly after his confirmation. Kallas spoke publicly of the invite, with the lack of any response from the State Department viewed as a notable snub.
• The reason for the meeting's cancellation is unclear at present. It may relate to Kallas' comments earlier in the week regarding the alleged 'strength' of the representation of Russia's war narrative in Washington, D.C.
• Kyiv Independent reported "Kallas stressed that no agreement regarding Ukraine or Europe can work without their participation. The EU's top diplomat said she plans to discuss "these and other issues" with Rubio and other officials in the U.S. [...]. Kallas also suggested that "the messages coming out of the U.S." regarding the elections in Ukraine suggest that "the Russian narrative is very strongly represented there."