EUR Swaps: ECB eyed after BOE hints at peak; Hawkish surprise unlikely

ECB sign sunny 9 Jun 2022
Traders eye the ECB meeting after the BOE hikes 50bps but hints at a peak. Some argue a hawkish ECB surprise is unlikely.

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  • ECB eyed; Hawkish surprise unlikely
  • New issues

    ECB eyed; Hawkish surprise unlikely
    The Bund soared almost one point first thing after an overnight double-digit rally from USTs as Fed Chair Powell said it was “gratifying” to see the “disinflation process has started”. For a full wrap on the Fed meeting and 25bps rate rise, see USD Swaps.

    More recently, the Bank of England announced a 50bps hike, as expected, in a 7-2 vote accompanied by a dovish statement. Amid choppy price action, the gilt surged by 160 ticks and the Bund was last up 75 ticks, with the 10y yield marked around 2.22% (-6bps).

    Ahead, the ECB is widely expected to announce a 50bp hike at 14:15 CET. One trader suggested Bund asset swap spreads could see movement depending on whether the ECB announces details on APP and/or the 0% cap on sovereign deposits (see also the section below).


    Currently in spreads vs 6mE the Schatz was last at 68.3bps (+1.7bp), Bobl at 63.9bps (unch), Bund at 60.6bps (-0.6bp) and Buxl at 26.7bps (-0.7bp).

    Meanwhile, strategists at Commerzbank suggest the scope for a hawkish surprise at today’s meeting is limited. It also highlights the importance of any announcements on APP holdings. It writes:

  • “With ECB-dated forwards also pricing in a total of 75bp for the March and May meetings as well as a terminal rate of 3.5% (60bp more than before the December meeting, see also move matrix below) the scope for hawkish surprises seems limited. These arguments mostly apply for the front-end, however, while we stick with our view of vulnerable long-end rates.

  • “Technical details from the ECB will probably be more relevant than the policy guidance. For one, Lagarde promised that "at its February meeting the Governing Council will announce the detailed parameters for reducing the APP holdings" after having outlined the principles in December, probably via a separate press release.

  • "Markets will also look out for any hints on the 0% cap on sovereign deposits at the ECB as easing specialness in repo and the aggressive run-down in the DFA's cash balance no longer render the extension of the waiver a foregone conclusion, which leaves ASW-tightener exposed.”


    New issues

  • Swedish Export Credit Corp plans investor meetings from February 20 through Credit Agricole.