Continued reaction to Powell

Bear steepening has been the theme of core fixed income markets this morning as European investors continue to digest comments yesterday from Powell that seemed to put a faster pace of tapering pace back on the table. The Eurodollar strip has underperformed the Euribor and short sterling strips this morning.

• There was a sharp move lower in Bunds around 8:00GMT/3:00ET with no new headline trigger. The moves seem to be attributed largely to continued reaction to Powell yesterday.
• Gilts have continued their downside moves following a very weak 10-year auction which saw a tail of 1.9bp (last matched in June 2019). Liquidity in gilt markets remains constrained, particularly with the lower supply and continued buying over the next three weeks from the BOE.
• Looking ahead ISM manufacturing will be the highlight (with ADP employment due before that). US data will be back in focus after Powell's comments yesterday.
• TY1 futures are down -0-16 today at 130-10 with 10y UST yields up 4.8bp at 1.495% and 2y yields up 3.5bp at 0.603%.
• Bund futures are down -0.53 today at 171.84 with 10y Bund yields up 3.4bp at -0.317% and Schatz yields up 2.0bp at -0.777%.
• Gilt futures are down -0.43 today at 125.85 with 10y yields up 6.5bp at 0.872% and 2y yields up 10.3bp at 0.573%.