RBA's Hauser Flags Uncertainty on Rate Settings Amid Iran War Economic Risks 
Bank of Japan's Ueda Flags Low Real Interest Rates as Key Factor in Rate Hike Timing 
ECB Rate Outlook: Ceasefire Eases Pressure but Hikes Still Expected in 2026 
Bank of America Maintains Forecast for Two Fed Rate Cuts in 2026 Despite Inflation Risks 
Bank of Japan Signals Potential Rate Hike as Inflation Risks Rise Amid Energy Shock 
RBNZ Holds Rates at 2.25% as Middle East Conflict Fuels Inflation Concerns 
South Korea Central Bank Signals Cautious Policy Amid Inflation and Middle East Tensions 
Federal Reserve Probes Big Banks Over Private Credit Exposure Amid Growing Systemic Risk Concerns 
RBI Clamps Down on Rupee NDF Activity, Banks Face Steeper Losses 
Singapore Tightens Monetary Policy Amid Middle East War Inflation Risks 
Japan Inflation Expectations Rise as BOJ Rate Hike Timing Faces Uncertainty 
Long-term hedge against higher rates: As the EUR long rates have moved lower and the yield curve has flattened, there is increasing interest in long-term hedges against a scenario of rates eventually moving higher. EUR short and intermediate rates should remain anchored by durably low ECB key policy rate and 4y maturity TLTRO II.
On the other hand, ongoing euro area recovery, increasing headline inflation in the coming months and progressive loosening of the fiscal policy should provide some incentive to protect against a sell-off at the long end of the curve. EUR long rates are also still being influenced by global factors: any UST sell-off triggered by a hawkish re-pricing of Fed expectations would drive EUR long rates higher, bear steepening the EUR swap curve.
The bull flattening of the EONIA curve has marginally richened reds and greens EONIA: a cumulative 15bp of easing is priced in by mid- 2018.
We find greens EONIA rich and keep reds/greens EONIA curve outright steepener.
As an alternative, for investors concerned about a further bull flattening of the curve we also advise a reds/greens EURIBOR conditional bear steepener implemented via 1Y and 2Y mid-curve put spreads.
EONIA fixings drifted marginally lower averaging almost -34bp. The EONIA market prices only about 15% probability of a 10 bps cut in the deposit rate at the September meeting.
Although the risk/reward may appear attractive for long positions vs. our baseline call we believe the bar for the ECB to cut the deposit rate in September is quite high and keep a bullish bias in Dec16 ECB OIS, as cheap hedge against further easing to take place before year-end, more likely as part of a package of further easing (QE extension).
However, with market pricing about 50% probability of another 10bp cut in December we refrain from entering outright longs.
