European Rates – The Morning Call: Robust rules out reversal

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European Rates – The Morning Call: Robust rules out reversal

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16 Jun 2026 02:00:00 ET │ 10 pages

European Rates – The Morning Call

Robust rules out reversal

CITI'S TAKE

Jamie Searle AC

#1 The presentation of the ECB hike last week suggests it is highly unlikely +44-20-7986-9493

to be reversed anytime soon, despite its coincidence with the emergence of jamie.searle@citi.com

a US-Iran deal. With the supply side shock still lengthening even as oil prices

retreat, a further removal of hike premium seems unlikely from here, limiting

the scope for € duration to extend the rally. The main impact of the deal

might be to reduce tails, dampen volatility and encourage carry strategies.

#2 Today’s auctions: €5bn of Bobl and £4.25bn of 10yr gilt – RV within.

The ECB hike is likely to stick… — The ECB effectively pre-committed to hike last

week all the way back on 30 April. In terms of policy error optics, it is therefore

somewhat unfortunate that the delivery coincided with the US-Iran deal finally

taking shape. However, the ECB was keen to state that the hike wasn’t seen as pre-

emptive or as an insurance hike or about credibility. Rather, the decision-making

was framed around the increase in contemporary inflation, particularly services, and

on the extent and persistence of the inflation overshoot in the projections, which

relied on the assumption of multiple hikes to ensure a return to target. Moreover, the

ECB had the foresight to present the hike as robust across all its scenarios, including

a milder scenario with downside for energy prices (the market path for oil prices is

already below the ECB’s milder level of $88/barrel for 3Q26 but still higher than the

$64/barrel penciled in for 4Q28). And while there was no discussion on policy