Eurozone interest rate hike bets for 2011 were stable on Friday after strong economic growth figures, with their resilience seen leaving room only for opportunistic trades during bouts of Greece-related volatility. Expectations the European Central Bank will raise its key rate once a quarter - meaning two more hikes of 25 basis points this year - remained unchanged after data showed eurozone economic output grew more than expected in the first three months of 2011.
Markets moved their rate hike bets to July from June after the statement following last week's ECB meeting failed to mention the code words "strong vigilance", but left overall expectations for this year unchanged. Analysts said the ECB had managed to anchor rate interest expectations by constantly expressing concerns about above-target inflation, and by differentiating between its liquidity policy - aimed at helping ailing banks in the periphery - and its rates policy, aimed at taming inflation.
"What you trade in this market is just direction based on market panicking or switching from risk aversion to risk appetite," said Matteo Regesta, rate strategist at BNP Paribas. A meeting of eurozone finance ministers on Monday and a June assessment of Greece's debt sustainability by the International Monetary Fund will be key events influencing debt restructuring expectations.
December Euribor futures were last 3 basis points down on the day at 98.00, having moved - with the exception of a few sporadic spikes - in a 15 bps range since early March, when the ECB first signalled that the April hike was imminent. Historically, Euribor has traded around 10-15 basis points above the key refi rate, meaning that at 98.00, the December contract implies two more 25 bps increases are fully priced in by the end of the year.
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