For the second month in a row, EUR term rates moved sharply higher over September. 3-year euribor swap rates started the month at 2% and traded through 3% in late September before closing the month at 2.78%. Part of the volatility in EUR term rates in late September was collateral damage from the poorly received fiscal update provided by the latest UK Chancellor on the 23rd of September. Following intervention in the UK government gilt market by the Bank of England, UK term rates have fallen in recent days, allowing EUR term rates lower to move lower also.
3-year rates are currently trading around 2.6%, a 0.40% drop from the September high which is the biggest correction lower in term rates since the middle of July. Cap costs have also fallen. The Bank of England is expected to continue to intervene in the UK gilt market until the middle of October so underhedged EUR borrowers may see further welcome falls in swap rates and cap premia over the coming days.