EUR SWAPS: Front-End Re-Pricing Drives Forward Curve to Parity
* The 1y1y/5y5y EUR OIS spread has flattened ~40bp since early this month and, fuelled by today's solid PMIs, is now flirting with parity. * While today's resilient data supports the view that the economy can withstand immediate pressures - with over 80bps of ECB hikes now priced in by mid-next year - there is little reason to push back on the policymakers' hawkish rhetoric. However, this aggressive front-end adjustment (1y1y surging to ~3.35% from pre-ECB levels near 3.10%) is simultaneously acting as a lid further out. * Source: Bloomberfg Finance LP, MNI At ~3.35%, the 5y5y rate remains off its September highs, suggesting that latent long-term growth fears and terminal rate concerns are capping the European term premium and keeping the long end anchored despite the near-term hawkish momentum.
* The 1y1y/5y5y EUR OIS spread has flattened ~40bp since early this month and, fuelled by today's solid PMIs, is now flirting with parity. * While today's resilient data supports the view that the economy can withstand immediate pressures - with over 80bps of ECB hikes now priced in by mid-next year - there is little reason to push back on the policymakers' hawkish rhetoric. 10%) is simultaneously acting as a lid further out. 35%, the 5y5y rate remains off its September highs, suggesting that latent long-term growth fears and terminal rate concerns are capping the European term premium and keeping the long end anchored despite the near-term hawkish momentum.