UBS Fixed Income-Global Rates Strategy -Rates Map Focus shifts to the June ECB meeting-此為英文文檔

ab

GlobalResearchandEvidenceLab

31May2024

GlobalRatesStrategy

RatesMap:FocusshiftstotheJuneECBmeeting

●WhiletheMayEurozoneinflationprintislikelytodisappoint,thesignalsthatemergedfromthelastECBpolicymeetingandrecentcommunicationfromGCmembersIsabelSchnabelandPhilipLanesuggestthattheECBisontracktocutratesby25bpsto3.75%intheupcomingmeetingon6June.

●TheexpectedECBpolicyeasingwouldlikelyprovideshort-termsupporttoEURrates,reducingthelikelihoodoffurthersell-offfromthealreadyhighlevels.

●ButforEuropeanratestorallysignificantlyfromthispoint,wewouldneedtoseemoreclarityontheECB'srate-cuttingcycle.TheECBappearslesscommittalafterJuneanditwillcontinuetofollowadatadependancestance,inourview.Our10yBundforecastisat2%byyear-end,butclearly,risksarenowtiltedtotheupside.

●Despitethebearsteepeningthisweek,weremaincautiousaboutwhetherthetimingisrightforstructuralsteepenersinthefront-endpartoftheEURcurve,suchasEUR2s10scurves.

●Structuralfront-endsteepenersshouldbe"bull"ratherthan"bear"steepeners,especiallyatthebeginningofaneasingcycle.Inflationuncertaintywilllikelypersist,keepingthe2s10scurveinvertedforalongerperiodoftime.Westillseemorevalueinlong-endcurvesteepeners.

●ThelongUSvsEURratestradehasgainedmoremomentum,resultingina35bpstighteninginSOFRvsESTR1y1ysincemid-April.ThistrendhasbeendrivenbyweakerUSactivitydataandimprovementsinEuropeaneconomicdata.Whilethecross-marketspreadishighfromahistoricalperspective,wethinkthatitwouldbechallengingforthespreadtocompressfurtherinthenearterm.TheECBappearsmoredovishrelativetotheFed,whileUSeconomicactivitydatahavereboundedfromrecentlows(Figure7).

●AsidefromEurozoneandPCEinflationdatathisweek,theupcomingECBmeetingandNFPdata(releasedon7June)willbeimportantfactorsfortheevolutionofthespread.

●WestillfindvalueinthefrontendoftheUKcurveduetothesharprepricing,excessiveRPIpricing,andrecentweaknessinPMIs.

●WeprefertoexpressthisviewviareceivingAugustMPCmeeting,whichappearsattractivefromavaluationpointofviewat-8.5bps.DespitethedisappointingprintinApril,weexpectinflationtoreachcloseto2%inMayandJune.ThiscouldpavethewayforaratecutinAugust,withtheUKgeneralelectionsoutofthewayandthepotentialforsignificantfiscalgiveawaysmorelimitedinthenear-term.

●InSwitzerland,thefocusnextweekwillbeonMayPMIreport(outonJune)andtheMayCPIreport(outonJune4).UBSexpectsinflationtoremainunchangedat1.4%y/yinMay,butcoreinflationtorise0.2ppto1.3%.TheSwissCPIreportshouldprovidemoreclarityregardingpricepressuresfromrentincreasesandtheweakerCHF.

●Themarkethaspricedoutalmost5bpsofcutsthisweekfromthe20JuneSNBmeetingpricing(currentlyat-8bps),followingcommentsfromtheSNBChairmanJordan,whichsuggestedthattheneutralratemaybehigher.

●Wecontinuetoexpecttwomore25bpsratecutsthisyear(inJuneandSeptember),toaterminalrateof1%.However,risksleantowardsfewercutsgivenJordan'sreferencetoneutralrates,anduncertaintiesininflationoutlookandFXinterventions.

InterestRates

EuropeincludingUK

EmmanouilKarimalis

Strategist

emmanouil.karimalis@+44-20-75678000

ReinoutDeBock

Strategist

reinout.de-bock@+44-20-75670152

MichaelCloherty

Strategist

mike.cloherty@+1-203-7194281

GilesGale

Strategistgiles.gale@+44-20-79016066

ThisreporthasbeenpreparedbyUBSAGLondonBranch.ANALYSTCERTIFICATIONANDREQUIREDDISCLOSURES,includinginformationontheQuantitativeResearchReviewpublishedbyUBS,beginonpage8.

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StillcautiousonstructuralEURfront-endsteepener

TheEUR2s10ssegmentofthecurvehasbearsteepenedbyaround8bpsthisweek,outsteepenigotherpartsoftheEURswapcurve(Figure14).AJuneratecutfromtheECBiswidelyanticipatednextweek,whichcouldprovidesomefurthersteepeningimpetus.Moreover,EURratesinthe2-5ysectorsappearcheapercomparedtoratesinthelongerpartoftheEURcurve,asindicatedbyourPCAanalysis(Figure10).

Nevertheless,wethinkthatsteepeningopportunitiesinthefront-endwillcontinuetobemoretactical.Structuralstepeenersshouldbe"bull"ratherthan"bear"steepeners.Therefore,weremaincautiousaboutwhetherthetimingisrightforstructuralsteepenersinthefront-endpartofthecurve.

Thecarryprofileoffront-endsteepenerscontinuestobepunitive(i.e.,3mcary/roll-downc.-12bps).Further,theECBpolicyratepathisnotclear,whileinflationisexpectedtobeabumpyprocessasPhilipLanementionedearlierthisweek.Moreover,itseemsthatthereisnoconsensuswithintheGoverningCouncilregardingthesubsequentpolicyeasingstepsbeyondJune.Hence,theECBwillcontinuetobedata-dependent,implyingthatthepressureinthefront-endwilllikelypersist.The10yEURrateiscurrentlytradingat2.90%,whichisneartheupperendofthetradingrangeforthisyear.Asdiscussedabove,itwouldbemorechallengingtoseeasignificantsell-offfromtheselevels,withthefirstECBcutpotentiallyactingasaceiling.

WhileinflationandeconomicoutlookdiffersignificantlyacrossEuropeancountries,thefirst25bpsofcutsfromtheRiksbankandSNBinMarchandMaydonotindicateanysignificantsteepeningacrossthecurves.Infact,theCHFcurvehasflattenedsincetheMarchSNBcut,whilethe2s10scurveinSEKhassteepenedby11bpssincethefirstcutfromRiskbank.However,thesemovesarepartofthisweek'schangeswhileothersegmentsacrossthecurveremainingrelativelyflat(Figure5).Westillseemorevalueinlongendcurvesteepeners,especiallyintheforwardspace,suchasEUR1yf10s30sorsimilar.

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Figure4:2s10scurveshavebeenstrugglingtosteepeninthepastmonths.

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一EUR2s10s一SOFR2s10sSONIA2s10s

Source:BloombergandUBS.

Figure5:CurvechangesinSEKandCHFfollowingthefirst25bpscutsfromtheRiskbankandtheSNB

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SincefirstSNBcut(21Mar)SincefirstRiksbankcut(07May)

Source:BloombergandUBS.

CantheUSvsEURratestighteningcontinue?

ThelongUSvsEURratestradehasgainedmoremomentumrecently.ThespreadbetweenSOFRvsESTR1y1yhasnarrowedby35bpssincethepeak190bpslevelsseeninApril.SignsofeconomicslowdownintheUS,combinedwithimprovementsinEuropeaneconomicdata(i.e.,EurozoneQ1GDP,PMIsetc.)haveledtoatighteningofthespread.UBSeconomicsexpectstheUSeconomytoslow-downfurtherinthecomingmonthsduetoconsumptionweakness,subduedinvestment,anddiminishingfiscalsupport.However,theMayPMIreportandconsumerconfidencedatathisweeksurprisedtotheupside(Figure7).WealsoexpectanotherstrongPCEAprilreport

tomorrow.WiththeECBappearingmoredovishcomparedtotheFedandpreparedtocutitspolicyrateinJune,thebarforasignificanttighteningwouldbemorechallengingtoachievegoingforward.ThecomparisonoftheFedvsECBpolicyratepathpricing

GlobalRatesStrategy31May2024ab4

suggestsalsoawiderSOFRvsESTRspread(Figure6).

Figure6:FedvsECBpolicyratepathsimplyawiderSOFRvsESTR1y1yspread

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——SFRvsESTR1y1y——FedvsECBcum.pricingDec24(rhs)

Source:BloombergandUBS.

Figure7:USeconomicslowdownhasledtotighterUSvsEURspreads,butactivityindicatorshavepickedupmorerecentlyintheUS

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CitiEconSurUSindexCitiEconSurEUindex

Source:BloombergandUBS.

WeseevalueinreceivingAugustMPC

ThetrendsincetheAprilUKCPIprintlastweekhasbeenhigherratesacrossthecurve.Themarkethasnotshiftedratecutsalongthecurve,butithaseliminatedcutsaltogether.Lastweek,weclosedourSONIADec24vs25flattenertradeandtookprofitbecausetherisk/rewardwaslessappealing.Asitstands,therearefewerthan50bpsofcutspricedinthroughMay.Furthermore,themarketpricingfortheJuneMPCmeetingisalmostflat.WhileUBS'sBoEcallstillassumesthefirstBoEcutinJune,itwouldbechallengingfortheMPCtocutratesforthefirsttimeinJune.ThisisduetodisappointingAprilinflationdata,strongwagegrowth,andcomplexitiesarisingfromtheupcomingUKgeneralelections.

InflationuncertaintywillcontinuetobethekeyfactordrivingUKrates.DespitethedisappointingprintinApril,UBSeconomicsexpectsinflationtoreachcloseto2%inMayandJunebeforereboundinginthesecondhalfofthisyear.CurrentmarketpricingofRPIfixingslooksexcessivewhencomparedtoUBS'ssecond-halfinflationforecast(Figure8).Furthermore,theSONIA1y1yrateappearsverycheapcomparedtocurrentinflationlevels(Figure9).Beforethe20thofJuneMPCmeeting,themarketwill

scrutinizetheUKlabourmarketreport(releasedon11June)andtheMayCPIreport(releasedon19June).

Wecontinuetoseevalueinthefront-endoftheUKcurve,consideringthesharprepricing,excessiveRPIpricing,andweaknessinrecentPMIs.WeprefertoexpressthisviewviareceivingAugustMPCmeetingascurrentpricingat-8.5bpslooksattractive(open:-8.5bps,close:-3bps,target:-20bps).WeexpectthattheAugustMPCmeetingwillbea"live"meeting,providedthatinflationcontinuestomoderatefurtheroverthesummeralongwithUBSexpectations.

WiththelatestopinionpollsshowingLabourwellaheadofConservatives,perhapsthekeyuncertaintyliesinthefiscaloutlook.Wethinkthatthelikelihoodofsubstantialfiscalannouncementsislimitedintheshort-term.Inaddition,theShadowChancellor,RachelReeves,confirmedthisweekthattherewillbenobudgetuntilSeptemberifLabourwinstheelectionsonJuly4.ThenewbudgetwillalsobeaccompaniedbynewOBRprojections.TheOBRrequiresa10-weeknoticeforprovidingnewforecasts.Hence,itwouldbedifficultforanewbudgettobeannouncedbythe19SeptemberMPCmeeting,limitingthechancesofalikelypauseinAugust.

Furthermore,theMPCwillprovideanewsetofmacroeconomicforecastsinAugust.Fromacommunicationstandpoint,itwouldbeeasierfortheMPCtoexplainalikelyrate

cutinAugust,providedthatforecastsareconsistentwiththeMPC'sinflationtarget.

Figure8:MarketUKRPIpricingissignificantlyhigherthanH2UBSforecasts

6.0%

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4.5%--…,'

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1.0%Nov23Feb24May24Aug24Nov24Feb25--mMarketimpliedUKRPIUBSexpectedUKRPI

Source:BloombergandUBS.

Figure9:WhiletheUKinflationoutlookremainschallenging,SONIA1y1yratesappearcheapcomparedtocurrentandprojectedinflationlevels

Source:BloombergandUBS.

Figure10:Rich-Cheapininterestrates,basedonPCAanalysis

Source:BloombergandUBS.Note:WeemployPCAanalysisoveraone-yearhorizontoestimateyielddynamics.Positivevaluesindicate"cheap"interestrates,andviceversa.

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GlobalRatesStrategy31May2024ab6

Summaryofkeymarketmoves

Figure11:MarketpricingvsUBSexpectations

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FedECBBoESNBRiks

Market2024.Market2025UBSe2024UBSe2025

Source:BloombergandUBSestimates

Figure13:Ratechanges(5-daychanges)

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Source:BloombergandUBS

Figure15:Realratesvsbreakevens

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RealInflationNominal

Source:BloombergandUBS

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Figure12:Marketimpliedpolicyratepath

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——BoE——FedRiksbank——ECBSNB

Source:BloombergandUBS

Figure14:Curvechanges(5-daychanges)

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Source:BloombergandUBS

Figure16:Real,breakevensandnominalratechanges(5-daychanges)

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Source:BloombergandUBS.

GlobalRatesStrategy31May2024ab7

ValuationMethodandRiskStatement

Risksofmulti-assetinvestingincludebutarenotlimitedtomarketrisk,creditrisk,interestraterisk,andforeignexchangerisk.Correlationsofreturnsamongdifferentassetclassesmaydeviatefromhistoricalpatterns.Geopoliticaleventsandpolicyshocksposerisksthatcanreduceassetreturns.Valuationsmaybeadverselyaffectedduringtimesofhighmarketvolatility,thinliquidity,andeconomicdislocation.

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