The first clip was opened at 10.25bp, the second clip at 6bp. Average entry is 8.125bp.
The position is closed, with an average profit of 10bp including roll down and trading costs.
Limited upside to 1Y1Y EONIA following recent sell-off
The EONIA curve has steepened considerably over the past couple of weeks, as the market reduced expectations of an ECB deposit rate cut and excess liquidity has moved rapidly lower. The sell-off at the longer end of the curve driven by the USD market has contributed to the steepening as well.
Given that the ECB has cut the refi rate to 0.50% and there is a reasonable likelihood of another 25bp cut, we believe the potential for further EONIA curve steepening is now limited.
Even though we have not reached our target, we have decided to take profit on our recommendation to pay EONIA 1Y1Y versus 1Y. Our old target of 25bp was set before the ECB lowered the refi rate by 25bp to 0.5%, and in our view is now very difficult to reach.
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