STIR: Year-end ECB Implied Rates Rise 4bps On Schnabel Comments
Hawkish repricing in ECB-dated OIS following Executive Board member Schnabel’s interview with the FT. OIS price 72bps of easing through year-end (vs 76bps before the interview was released).
- Schnabel’s comments were hawkish leaning, but not overly surprising given her traditional stance on monetary policy. In particular she said “we are getting closer to the point where we may have to pause or halt our rate cuts”
- There are 54bps of cuts priced through the June decision (i.e. more than fully pricing 2x25bp cuts across the next three meetings).
- March pricing is unsurprisingly stickier (23.5bps of cuts priced vs 24bps prior), with a 25bp cut comfortably baked into consensus already. Schnabel said the bank will have a discussion on dropping the reference to policy restrictiveness in March, but did not provide any further signals for the decision.
- Euribor futures now -1.5 to -4.5 ticks through the blues.
| Meeting Date | ESTR ECB-Dated OIS (%) | Difference Vs. Current Effective ESTR Rate (bp) |
| Mar-25 | 2.431 | -23.5 |
| Apr-25 | 2.290 | -37.7 |
| Jun-25 | 2.127 | -53.9 |
| Jul-25 | 2.073 | -59.3 |
| Sep-25 | 1.998 | -66.8 |
| Oct-25 | 1.977 | -68.9 |
| Dec-25 | 1.945 | -72.2 |
| Feb-26 | 1.941 | -72.5 |
| Source: MNI/Bloomberg. | ||
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EGB SYNDICATION: Lithuania 5/15-year LITHUN Mandate
Lithuania has announced a mandate for a new 5-year / new 15-year LITHUN EMTN dual-tranche syndication to take place in the "near future".
- The LITHUNs will mature in January 2030 and January 2040 respectively.
- Lithuania's gross borrowing requirement for 2025 is E8.8bln of which E6.0bln is expected to be raise from EMTNs. This increases the scope for a larger Lithuanian syndication that we have seen in recent years (and note this will be the first dual-tranche Lithuanian transaction to see two new issues since April 2020).
- We pencil in E750mln to E1.5bln to be sold in each tranche, with a total deal size at least matching the E2.0bln sold in the April 2020 syndication (and the possibility of E2.5-3.0bln).
- We expect the transaction to take place tomorrow.
US 10YR FUTURE TECHS: (H5) Corrective Cycle Still In Play
- RES 4: 110-25 High Dec 12
- RES 3: 109-31 High Dec 18
- RES 2: 109-17+ 50-day EMA
- RES 1: 108-27+/109-06 High Jan 17 / High Dec 31
- PRICE: 108-11+ @ 11:02 GMT Jan 20
- SUP 1: 108-00/107-06 Low Jan 16 / 13 and the bear trigger
- SUP 2: 107-04 Low Apr 25 ‘24 and a key support
- SUP 3: 107-00 Round number support
- SUP 4: 106-11 2.00 proj of the Oct 1 - 14 - 16 price swing
The medium-term trend condition in Treasury futures remains bearish, however the Jan 15 rally and subsequent gains, highlight a stronger S/T corrective cycle. The contract has traded through the 20-day EMA, at 108-17. This exposes 109-06, the Dec 31 high, and 109-17+, the 50-day EMA. A clear break of the 50-day average is required to strengthen a bullish theme. The bear trigger has been defined at 107-06, the Jan 13 low.
ECB: Weekly ECB Speak Wrap (Jan 14 – Jan 20)
ECB speakers had little reason to push back on implied rate pricing last week, with softer-than-expected US CPI data helping unwind some of the hawkish adjustments seen earlier this month, and the Eurozone December final inflation data confirming a softening of core inflation momentum.
- Current market pricing is consistent with a 2% deposit rate at the end of 2025, broadly in line with some of the more dovish Governing Council member’s views (e.g. Villeroy, Centeno, Stournaras).
- Implied easing is heavily front-loaded, with 25bp cuts essentially fully priced through January and March and 80bps of cuts priced through June.
- Schnabel, Holzmann and Nagel provided characteristically cautious views on future cuts, with the former noting that the bank will soon need to see “whether and how much further we can lower interest rates”.
- However, we view Schnabel’s January 19 comments around inflation as somewhat more relaxed compared to her views on December 16 (“I would tend to say that there are still some risks that suggest that inflation could be higher. But at the moment we have the feeling that everything is going in the right direction”), supporting market pricing for two more 25bp cuts in January and March before the outlook becomes less clear cut.
- The World Economic Forum in Davos provides a platform for several ECB speakers in the week ahead. ECB President Lagarde is scheduled on Wednesday and Friday, her first appearances since December 23. A key focus will be on any initial reactions to policy announcements from US President-elect Trump, whose inauguration is on January 20. The regional data calendar is headlined by the January flash PMIs on Friday.
- In the following publication, we provide a summary of ECB-speak between January 14 and January 20: 250120 - Weekly ECB Speak Wrap.pdf
