Following the news that Iran will open the Strait of Hormuz, yields have declined across regions and tenors, with 2Y swap rates down 10bp. ECB pricing is down to 44bp by YE 2026.
By extension, our recommendation to receive the 2Y1Y ESTR swap, which we entered yesterday afternoon, has benefitted from the recent move lower (see more in Reading the Markets EUR – From spring hikes to summer hikes; receive 2Y1Y ESTR swap) and is currently 9bp in profit. Given the risk of escalation over the weekend, which has been the case in the past few weeks, we choose to book a 9bp profit @ 2.46%.
We continue to like the strategic case for a move lower in EUR swap rates so will continue to monitor the swap.