Bull Steepening As Peak Rate Expectations Soften Pre-US PPI

Bund and Treasury futures have bounced back after hitting 6-week lows in early European trade Thursday, while UK short-end yields continue to outperform.

• The US, UK, and German curves are bull steepening, with implied central bank terminal pricing continuing to pull back from Tuesday's post-US CPI highs.
• Safe-haven instruments saw a modest bid after China announced sanctions against against US defense companies Raytheon and Lockheed Martin.
• Little European data of note, but solid auctions for Spain Oblis and French OATs this morning, with Italy 30Y syndication underway; in the US we get 30-Year TIPS supply.
• ECB's Panetta called for small rate hikes, cautioning against overtightening. More central bank speakers ahead, including BoE's Pill; ECB's Lane, Nagel, Makhlouf, and Stournaras; and Fed's Bullard, Cook, and Mester.
• Another heavy slate of US data ahead, including jobless claims, housing starts, and the Philly Fed business outlook.

Latest levels:

• Mar 10-Yr US Tsy futures (TY) up 6.5/32 at 112-8 (L: 111-29.5 / H: 112-11.5)
• Mar Bund futures (RX) up 8 ticks at 134.82 (L: 134.62 / H: 135.11)
• Mar Gilt futures (G) down 2 ticks at 103.23 (L: 103.1 / H: 103.45)
• Italy / German 10-Yr spread 0.2bps tighter at 185.4bps