The Euribor ends 2024 breaking all the experts’ schemes. The index, with two sessions left to close December, is set to close the year at 2.471%, 1.208 percentage points less than a year ago. It will represent the largest annual drop at the end of the year since 2012. Both analysts and financial markets; They point out that 2025 will be marked by more falls for the Euribor, but much more moderate.
Forecasts do not work like a crystal ball. They serve to map out the future scenario that is most likely to occur, but there is always the possibility of surprises. And the Euribor has been one of the indicators that has surprised with its behavior. The initial forecasts were correct that 2024 was going to be a year of falls for the mortgage index, but where they were not completely accurate was in the intensity.
But before delving into why the expert consensus did not see the speed of the Euribor’s fall coming, we must review the year that is going to end. Fiscal 2024 started off tumultuous for interest rates. The financial markets were pricing in an avalanche of cuts, both for the ECB and the Federal Reserve, when not even the institutions had given clear signals to lower the price of money. The ECB did not fire until last June and the Fed did not do the same until September.
Something had broken in the connection between market expectations, analysts and the central banks themselves. The financial markets were discounting a series of rate cuts that only fit with a scenario of great recession for the world’s large economies and no one else saw it, but the Euribor did begin to draw this scenario. The twelve-month index has not stopped trading much lower than the rest of the terms and it began to do so, right at the beginning of the year.
The explanation has to do with the prospect of rate cuts. Despite market pressure, central banks were slow to lower rates, but at the end of the year the market outlook was not too off track. For example, the ECB has ended up executing four rate cuts in 2024 of 25 basis points, to drag the deposit rate, the main rate reference for the market, from 4% to 3%.
A recession that did not come
What there was not a collapse of the economy, but a darker outlook for Europe, especially in Germany; The US economic engine was cooling and inflationary pressures were disappearing. Regarding the Euribor, the big drops began after the first half of the year, when promises of rate cuts became a reality. The index has gone from touching 3.6% to ending the year below 2.5%.
Analysts anticipated that the rate cut was going to drive down the Euribor, but not that the famous indicator would run much faster than the ECB. The Funcas panel of January 2024, which includes the forecasts of the 19 research services in Spain, placed the Euribor at the end of the year at 3.27%, they were even much closer than the consensus of analysts of Bloomberg which pointed to the Euribor ending at 3.4%.
Despite the fact that the Euribor market bets fluctuated greatly in the first half of the year, in the face of an unbreakable US economy and a buoyant Eurozone on the periphery; The Euribor futures contracts in January 2024 were almost right about how the Euribor was going to end. They only missed by a few tenths. The maturities of December of this year anticipated that the Euribor was going to end up above 2.3%.
What is going to happen in 2025?
It seems that the two forces that surround the Euribor, Market expectations and expert forecasts have begun to converge on the speed of the Euribor falls by 2025.
Everything indicates, and barring an even bigger surprise than that of 2024, the index that governs variable interest mortgages will continue to fall. Not as much as this year, but it is discounted by around half a percentage point or 50 basis points for the index.
The financial swaps that investors use to hedge their positions anticipate that the ECB will raise interest rates above 1.75% next October, so the Euribor will not go off track. Futures contracts expiring in December 2025 stand at 1.9%. The consensus of Bloomberg analysts speaks of 1.85% by the end of the year. If the forecasts come true, the Euribor should end up slightly below 2%. The bad news is that neither the market nor analysts anticipate further declines for 2026.
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