Divyang Shah, Senior IFR Strategist
1) the EONIA curve steepening and 12x24 EONIA now close to getting above 50bp, and
2) the spread between Euribor and Euro$ is so tight.
The move on EONIA and tighter Euribor/Euro$ spreads seem inconsistent with the likelihood that while the ECB’s tightening cycle is over they are far from shifting toward early tightening.
It was only last month that the ECB delivered a rate cut and the focus from the ECB remains biased toward keeping further easing in reserve as opposed to taking its foot off the accelerator.
We could be early but we are tempted at entering a pay 12x24 EONIA at the current 46bps (stop at 54bp) as well as looking to pay 1y1y EUR at 81bp. It might even be attractive to hold some Jun05 Euribor call spread with the 99.375-99.500 call having a theoretical value of 4 ticks.
