EURIBOR OPTIONS: Put fly buyer

Looks like the fresh 2-year high in TTF prices is facilitating German underperformance vs. UK paper, with UK/German spreads 1.0-1.5bp tighter across the curve early today.

• Continued downbeat assessments surrounding the UK labour market (covered earlier) also a potential factor in the spread narrowing.

ERM5 97.875/97.9375/98.00/98.0625c condor, bought for 1.5 in 2.5k.

Goldman Sachs note that ECB’s report on r* “de-emphasised the usefulness of neutral rate estimates for policy, a sentiment echoed by ECB speakers. This suggests that the ECB will not be overly constrained by these estimates, and as a result will follow the signals of the upcoming data.”

• In terms of the feedthrough to their market views, they note “with tariff risk opening up the possibility of slightly more front-loaded cuts we take profit on our ERM5/Z5 flattener recommendation and now recommend outright receiving June 2025 ECB-dated OIS, which is pricing less than 3 cuts, and is better suited to give exposure to a renewed build-up of trade tensions.”