European Rates Weekly: Green light for carry trades?

Research evidence excerpt

European Rates Weekly: Green light for carry trades?

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18 Jun 2026 16:15:05 ET │ 24 pages

European Rates Weekly

Green light for carry trades?

CITI'S TAKE

Jamie Searle AC

This week: (1) ECB’s sticky hike premium will keep duration in a range, but +44-20-7986-9493

vol should continue correcting lower, and we like receiving € 2s5s30s as a jamie.searle@citi.com

normalization trade. (2) The June MPC should reinforce expectations for a

long hold, but residual hike premium in SONIA is likely to reduce only slowly. Andrea Appeddu AC

(3) We expect Germany’s Q3 issuance update next week to broadly maintain +39-02-8906-4316

headline bond supply, with 10yr Bunds dominating Q3 supply, and a peak andrea.appeddu@citi.com

NCR in July. (4) In SSAs, we provide our expectations for EU H2 26 funding

plan and recommend selling Austria vs the EU. Jussi Harju, CFA AC

+49-69-1366-5655

Overview: Green light for € carry trades? — ECB speakers have all agreed this week jussi.harju@citi.com

that the inflation shock will not be reabsorbed quickly, inferring that the hike AC Puja V Sawantpremium is likely to stick even amid lower oil prices. While (right) tail risk has

arguably decreased, duration is unlikely to sustain a bullish regime, and we rather +91-22-4277-5155

favour positioning for lower vol by receiving € 2s5s30s. puja.sawant@citi.com

Damilola Lanre-OjoUK: taking out hikes, one at a time — The 18 June MPC meeting endorsed current

pricing. While it strengthens the likelihood of a long hold, we expect the residual +442079863918

hawkish premium in SONIA to be sticky, with the market unlikely to revert to cut damilola.lanreojo@citi.com

pricing anytime soon. Hike premium is likely removed only slowly, essentially one

meeting at a time.