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A busy start driven by UK inflation

BONDS
  • A very busy morning session for Govies and Rate markets, which was all triggered by the UK CPI beat on the Govie cash open.
  • SONIA strip opened with gap down, 6 ticks for the SFIM3 96.61 to 96.55, and plummeted 36 ticks, breaking through the June lows, and at contracts lows.
  • This was the story along the strip, as investors and traders priced 200bps worth of hike to May 2023.
  • UK 2s/10s tested the most inverted level since 2007.
  • All the action was in Govies and rates, and EGBs and Bund got dragged lower by UK.
  • At the time of typing, dust has settled in Govies and UK Rates.
  • Bund moves off the low, underpinned by the small EU GDP miss.
  • Some likely squaring in the SONIA strip, with June and Sep 23, 14 ticks off their lows now.
  • The move in futures, pushed the 10yr Yield Gilt/Bund spread by another 1.5bp wider, highest since 22nd March.
  • Upside resistance is seen at 120.05bps.
  • With the move more pronounced in Europe and the UK, US Treasuries futures outperforms Europe, but are also still trading in the red.
  • Tnote/Bund spread is in turn 3.8bps tighter and testing initial support at 179.46bps, now at 179.5bps.
  • Looking ahead, US, Retail Sales, and FOMC minutes will also be in focus.
  • Fed's Bowman speaks on technology and financial services.
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