Morning from Europe!

The lack of data out of the US will likely allow European central banks, such as the Riksbank and the Bank of England, to dictate global rates trends this week. Our PCA tool flags the EURIBOR strip as cheap relative to global developments (especially ER6), that there is a decent short-time scope to price European rates a little lower. hinting

This is the kind of “respite” that everyone from the PBoC, to the BoJ and potentially even the ECB have been hoping for in recent months on the back of a relentless USD rates repricing. Until we get potentially bad news from the inflation report from the US, the respite is most likely going to continue. This is also good news for rates sensitive bets in equity space and we continue to lean into risk assets this week.

Chart 1: Fixed Income fair value heat map