Core FI retracing; peripheral spreads widening further

Retracement from yesterday's big ECB-induced falls has been the name of the game in the morning session in core fixed income, but not the story in peripherals - with GGB and BTP spreads in particular continuing to notably move to new multi-year highs.

• In terms of events to watch later, the US CPI print is the highlight of the US session. Consensus has headline CPI inflation rising +0.7% M/M from +0.3% M/M as energy rebounds with large rises seen in both gasoline and the less heavily weighted gas component. Core inflation is seen dipping to +0.5% M/M (av 0.4%) from the surprisingly strong +0.57% M/M in April, in part as airfares slow from their record 19% M/M rise. Few categories are expected to materially accelerate but instead could maintain similar strength. As has been the case under this recent Fed guidance of 2x50bp hikes, greater focus will be on implications for the rate path further out determined by the breadth of sequential inflation and changes in the particularly sticky rent components. For our full CPI Preview including 10 sell side summaries click here.
• TY1 futures are up 0-3 today at 118-00+ with 10y UST yields down -1.3bp at 3.031% and 2y yields up 3.3bp at 2.846%.
• Bund futures are up 0.32 today at 148.12 with 10y Bund yields down -2.0bp at 1.406% and Schatz yields up 1.6bp at 0.841%.
• Gilt futures are up 0.09 today at 114.08 with 10y yields down -0.9bp at 2.313% and 2y yields up 2.5bp at 1.865%.
• BTP futures are down -0.48 today at 119.37 with 10y yields up 4.7bp at 3.643% and 2y yields up 15.0bp at 1.542%.