Divyang Shah, Senior IFR Strategist
… by highlighting that they stand ready to act again when needed. But we know that the script that the ECB will follow is that there is no reason to raise rates due to low inflation, weak growth and high unemployment.
All of the above are likely to be reiterated at the ECB meeting next week where we should expect a further flattening of money market curves.
The 12x24 EONIA rate has come off its highs and while the curve is only modestly flatter today there is more room for a further correction.
Cognisant of the volatility we suggested a a 50% short at 45bp and receive 12x24 EONIA with a stop at a wider 60bp.
In addition we have looked at a Jun5 Euribor call spread with 99.375-99.500 strikes.
