Cautious Optimism That CPI Report Won't Produce Hawkish Surprise

Global core FI is stronger with curves mostly flatter, and Gilts outperforming Treasuries and Bunds ahead of the highly anticipated US inflation report.

• Bonds are trading with cautious optimism that the much-anticipated US inflation release won't produce a hawkish surprise. This is corroborated by US dollar weakness and broad equity strength.
• While headline CPI is expected to have retreated in December (-0.1% M/M survey), core CPI is the focus of today’s US inflation report (0830ET/1330GMT), seen picking up to 0.3% M/M from 0.2% prior. Jobless claims data is out simultaneously but as usual won’t be a market mover.
• Periphery EGBs continue to rally following Wednesday’s dovish-leaning ECB news (including an MNI sources piece pointing to potential for slower rate hikes in the spring), with BTP/Bund 10Y spreads testing the 180bp mark.
• Fed speakers include Barkin, Bullard and Harker; BoE's Mann speaks as well.
• $18B 30Y Tsy re-open auction features later in the session.

Latest levels:

• Mar US 10-Yr futures (TY) up 1/32 at 114-15 (L: 114-11 / H: 114-22)
• Mar Bund futures (RX) up 25 ticks at 137.89 (L: 137.63 / H: 138.45)
• Mar Gilt futures (G) up 20 ticks at 103.88 (L: 103.64 / H: 104.14)
• Mar BTP futures (IK) up 41 ticks at 115.31 (L: 114.94 / H: 115.8)
• Italy / German 10-Yr spread 2.2bps tighter at 180.9bps