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Core FI moves lower with gilts underperforming

BONDS
  • Core FI is generally lower across the board as the market continues to digest yesterday's comments from Powell with Treasuries and gilts having now largely retraced Tuesday's rally, but Bunds still remaining higher as expectations of ECB tightening policy remain pushed into the future.
  • Gilts are the underperformers this morning following on from comments from BOE's Tenreyro last night that sounded further concerns on inflationary pressures. Although she didn't expect a wage-price spiral in the UK, she noted that the BOE would need to act if inflationary pressures ramped up. She also said that the increase in wages in the BOE Agent's survey was a surprise and something that would have a significant impact if followed through in the data. This has seen the SONIA strip underperform this morning and led to a bear flattening of the gilt curve, led by the front-end.
  • Looking ahead we have part two of Powell's testimony today. His comments saw core FI move lower yesterday and the Eurodollar curve steepen as he seemed to endorse a 25bp March hike but kept the door well and truely open to 50bp hikes down the line if inflationary pressures did not fade.
  • We are also due to hear from Fed's Barkin and Williams, BoC's Macklem while the Accounts of the ECB February meeting are also due for release (although these will be stale given geopolitical developments).
  • TY1 futures are down -0-0+ today at 127-08+ with 10y UST yields down -0.7bp at 1.872% and 2y yields down -1.7bp at 1.498%.
  • Bund futures are down -0.48 today at 168.90 with 10y Bund yields up 2.4bp at 0.047% and Schatz yields up 3.3bp at -0.594%.
  • Gilt futures are down -0.79 today at 124.24 with 10y yields up 7.4bp at 1.331% and 2y yields up 9.0bp at 1.155%.
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