European Rates Weekly: The cracks are showing

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European Rates Weekly: The cracks are showing

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23 Jul 2026 17:10:02 ET │ 25 pages

European Rates Weekly

The cracks are showing

CITI'S TAKE

Jamie Searle AC

This week: (1) In the absence of second-round inflationary effects, energy +44-20-7986-9493

prices will continue to be the main driver of € monetary policy, and we jamie.searle@citi.com

recommend buying short-expiry vs intermediate vol on front-end rates. (2)

Ahead of the BoE next week, gas prices and wider crack spreads are adding Andrea Appeddu AC

hawkish risk, but we think the MPC can allow the market to keep doing the +39-02-8906-4316

work for now (with September pricing looking overdone). (3) We look for gilt- andrea.appeddu@citi.com

Bund widening above 200bp on the interplay between monetary and fiscal

policy risks. (4) 10-30y EU-OAT spreads are near the 2025 tights, with EU Jussi Harju, CFA AC

primary demand continuing to rise, albeit via syndications, not auctions. +49-69-1366-5655

jussi.harju@citi.com

Adequately positioned to wait? — On the day when oil prices marked above the AC Puja V Sawant$100 handle for the first time in two months, the ECB’s Governing Council held rates

steady on lacking second-round effects. If markets really have well understood the +91-22-4277-5155

ECB’s reaction function, then September is close to a done deal, but energy price puja.sawant@citi.com

swings remain the main driver of monetary policy. Despite attractive entry levels, we Damilola Lanre-Ojo

are wary of establishing long-end steepeners due to their sensitivity to implied

+442079863918volatility, and we recommend going long € vega (and gamma) by buying 3m1y payers

against 1y1y payer spreads. damilola.lanreojo@citi.com

GBP rates: Will the BoE crack? — While we still think BoE pricing is overdone for the