Citi Provide A Quick Overview Of The European Rates Sphere

Citi note that “central bankers want to dismiss talk of cuts and keep the market guessing about further hikes (with Powell changing tune last week), but the market is likely to stick to higher-for-H1 only.”

• “Data surprises point to tighter gilt-Bund spreads, but the widening signal has weakened a little for UST-Bund. Inflation break-evens (aided by oil prices) offer a tactical bull-flattening bias for 2s10s Bund.”
• “In € swap spreads, we are cautious about fading the cheapening.”
• “Separately, Dutch pension funds might announce the second highest average indexation since 2007, putting flattening pressure on € swaps.”
• “In euro inflation, while break-evens have perhaps not yet reached the bottom, the floor in forwards is getting closer, in our view.”