MNI China Daily Summary: Wednesday, December 11

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Core FI off overnight highs but gilts move higher despite higher CPI

BONDS
  • Treasuries and Bunds are off their overnight highs following the missile strike in Poland as it remains unclear if the situation was caused by friendly fire or a stray Russian missile. Russia has denied any responsibility and risk has recovered somewhat. The Treasury curve has seen a bit of a bear steepening while the German curve has marginally flattened.
  • Gilts have been more moving to their own beat following this morning's inflation print. Headline CPI was 0.4ppt above consensus expectations and 0.2ppt above the Bank's forecasts while core CPI remained at 6.5%Y/Y rather than falling back 0.1ppt as had been expected. Much of the upside surprise came from energy and food prices which lead to the upside coming largely through higher goods prices. PPI output costs were lower than expected. Overall, the details were less concerning than the headline surprise would suggest and gilts are now higher on the day. Expectations for the December MPC meeting rose to around a 55% probability of a 75bp hike but have since fallen back to around 45% (in line with yesterday's levels).
  • Looking ahead we have US retail sales and import / export prices as well as manufacturing production.
  • Four MPC members (Bailey, Broadbent, Mann and Dhingra) will testify ahead of the TSC later today while the Fed's Williams will deliver the keynote speech at the Treasury Market Conference. We will also hear from the ECB's Lagarde and Villeroy and the Fed's Waller.
  • TY1 futures are down -0-0+ today at 112-17+ with 10y UST yields up 2.8bp at 3.800% and 2y yields up 2.4bp at 4.365%.
  • Bund futures are down -0.15 today at 139.18 with 10y Bund yields down -0.1bp at 2.104% and Schatz yields up 1.1bp at 2.123%.
  • Gilt futures are up 0.21 today at 105.18 with 10y yields down -1.0bp at 3.280% and 2y yields up 0.3bp at 3.071%.
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