At Any Rate Global Rates: European rates market topics: The ECB, cross currency basis and €-SSA markets
Jun 6, 2025
Khagendra Gupta, an Analyst at J.P. Morgan Global Research, shares insights on the European rates market and the recent ECB interest rate decisions. He discusses how the ECB’s strategies are influenced by economic uncertainties and market expectations. The conversation also dives into the nuances of cross-currency bases, particularly concerning the euro-dollar dynamics. Gupta highlights trends in bond issuance and the impact of geopolitical factors on market trends, all while addressing the implications for euro SSA and sterling markets.
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ECB Rate Cut and Hawkish Tone
- The ECB cut rates by 25bps in June but signaled a hawkish tone, raising the bar for further cuts. - Another cut is expected but delayed to September due to data uncertainty and cautious ECB stance.
Front-End Euro Rates Overpriced
- The market's front-end euro rates seem too high given risks, pricing too little optionality for July cuts. - Risks are tilted dovish, implying a potential for meaningful ECB cuts below 2% in the coming months.
Drivers of Euro-Dollar Basis Widening
- Euro-dollar cross-currency basis drivers include relative Fed-ECB rate paths and balance sheet dynamics. - Factors like reverse Yankee issuance and US debt ceiling issues should widen the euro-dollar basis further.