Rising disinflationary pressure should lead to cautious ECB

In Euribor futures, the strip has bear steepened over the past few days, as it has probably been affected by the sell-off in the EGB market, with the Schatze cheapening 3bp and the 10y Bund yield rising 15bp since the end of last week. The move seems to be related to positioning and market flows rather than to economic fundamentals. 

"The latest international developments (ie, weakness in oil and commodities prices, yuan devaluation and rising concerns on China's economic growth, increased market volatility) should lead the major central banks to adopt more cautious approaches, eg, the Fed delaying the beginning of its hiking cycle, probably to March 2016 and the ECB maintaining its easing bias for longer, with additional measures possible", says Barclays. 

For this reason, the 13bp spread on the future strip between Jun17 and Jun16 is too wide. 

"With the liquidity expected to remain abundant for a long period, the ECB unlikely to change its policy rates given the low inflation dynamic (we expect inflation to average 0.0% this year and 0.8% next year, far from the 2% target), the 3m Euribor is likely to remain negative even in 2017", added Barclays.