BTPs Outperform As Soft Euro Inflation Data Brings Bunds Off Lows

For the second consecutive session, Eurozone inflation data has been the main market driver in the European morning, with US PCE and Chicago PMI eyed later.

• An early upside surprise in the French prelim March inflation report saw Bunds sell off and ECB hike pricing pick up further, but the move was partially reversed as Italian CPI came in well below expectations, leading to a downside miss in overall Eurozone inflation.
• Bunds went from session lows to near session highs and BTPs rallied strongly on the Italian CPI miss, with the overall impact being 10Y spreads compressing 4.2bp.
• ECB depo hike pricing pulled back about 8bp as well (terminal still up 1.2bp on the day to 3.61%), with BoE peak Bank Rate retreating around 4bp (last 4.69%).
• ECB's Lagarde and Vujcic have scheduled appearances later.
• The US curve remains bear flattened, with Fed May hike pricing remaining slightly firmer (1bp) overnight at 15bp (60% implied probability of a 25bp raise).
• We get several key data points to close out the week/month/quarter: Feb PCE release, MNI Chicago Business Barometer, and final UMichigan sentiment.Late Friday, Fed's Williams and Cook make appearances (Waller speaks over the weekend).

Latest levels:

• Jun US 10Y futures (TY) down 2.5/32 at 114-16 (L: 114-09 / H: 114-20)
• Jun Bund futures (RX) up 20 ticks at 135.42 (L: 134.7 / H: 135.64)
• Jun Gilt futures (G) down 6 ticks at 103.33 (L: 102.8 / H: 103.42)
• Italy / German 10-Yr spread 4.2bps tighter at 181.9bps