European Rates – The Morning Call: Tactically bearish € duration

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European Rates – The Morning Call: Tactically bearish € duration

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30 Jun 2026 02:00:00 ET │ 10 pages

European Rates – The Morning Call

Tactically bearish € duration

CITI'S TAKE

Jamie Searle AC

#1 Absent a fresh spike in oil prices, today’s € inflation data may be the last +44-20-7986-9493

chance to inject hike premium into the July ECB. #2 Still, a second ECB hike jamie.searle@citi.com

cannot be ruled out – most likely in September, as priced - given pipeline

pressures. Note, effective ECB tightening still lags the BoE. #3 We do not

expect the € duration rally to extend even if the ECB is one-and-done.

Other than oil price volatility, today’s € inflation data is probably the last chance

to inject hike premium for July… — The market has nearly given up on the idea of a

back-to-back hike by the ECB in July with just 1.5bp priced (all pricing as of 17:30

BST 29Jun26). Today’s inflation releases for France, Italy and Germany - ahead of

the EA flash tomorrow - are probably the last chance to change the story for July.

However, it would likely take a significant upside surprise in service prices and

material evidence of a broadening in inflation, which didn’t seem to be evident in the

country releases so far. That’s especially true given spot Brent oil prices have fallen

to near pre-conflict levels. Unless this changes, July seems off the table.

…but a second hike could still follow… — While the market-implied path for oil

prices is about 17% below the ECB’s milder scenario for 3Q26, it is still higher than

the milder scenario from mid-2027 and 9% higher at the end of the horizon (4Q28)-

Figure 1. This multi-year outlook keeps alive the possibility of another hike given the

pipeline pressures for € inflation. Indeed, our economists point out (see the Euro