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Core FI moves lower on EZ CPI; but gilts underperform on ONS ruling

BONDS
  • Core fixed income is close to the low of the day across the board following higher-than-expected Eurozone CPI (a one tenth beat for headline and two tenth beat for core). This followed some softer French HICP data but much higher Italian HICP data. The German curve has seen both Schatz and 10y Bund yields up around 2.5bp with peripheral spreads widening on the day (led by BTP-Bund with the 10y spread 2.7bp wider at writing).
  • Gilts have been the biggest movers of the day after the ONS ruled that the energy support scheme is a direct fiscal transfer to households and would therefore have no impact on CPI or RPI (see more on that here). Technical support levels have been breached and 2/10-year yields are both up more than 10bp on the day.
  • USTs have broadly followed the main direction of the German curve today, albeit with a generally lower beta.
  • Looking ahead, the data highlights will be this afternoon's MNI Chicago Business Barometer (due at 14:45BST / 9:45ET) and the ADP employment report at 13:30BST / 8:30ET (with its new methodology).
  • Today's speakers include the Fed's Mester, Logan and Bostic.
  • TY1 futures are down -0-2 today at 116-30 with 10y UST yields up 1.9bp at 3.123% and 2y yields up 3.1bp at 3.475%.
  • Bund futures are down -0.14 today at 148.06 with 10y Bund yields up 2.3bp at 1.531% and Schatz yields up 2.4bp at 1.163%.
  • Gilt futures are down -0.96 today at 107.91 with 10y yields up 10.7bp at 2.809% and 2y yields up 10.7bp at 3.006%.
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