Rates Spark: Inflation Data Next Test For Bullish Euro Rates

2026-02-27 03:55:00 ET

By Michiel Tukker , Senior European Rates Strategist

Eurozone inflation stable, but also source of risk

Inflation surprises remain a risk to our rates view, both in terms of upside and downside risks. Markets are positioned for lower inflation, with the 2Y inflation swap marking 1.75% now, which is well below the European Central Bank’s target. Nevertheless, only 7bp of ECB easing is priced in for 2026, suggesting the probability of another rate cut is just 30%. This means that markets are content with an undershoot and don’t see the need for the ECB to respond....

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