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Cored fixed income is generally a little softer this morning ahead of the week's key events (the ECB policy decision and US CPI release).

  • As we note in the MNI ECB Preview, the baseline scenario will see the ECB reaffirm its commitment to conduct PEPP at a higher pace, but could moderate the language from "significantly higher". Staff macroeconomic projections show a modest uptick in the growth and inflation forecasts, with the latter still below target over the medium term and the risk assessment considered 'balanced'. As recently as a couple of weeks ago the market had started to position for a potential slowdown in purchases but price action over the past few days suggests there has been some decent position squaring ahead of today's meeting.
  • In terms of US CPI, April's upside inflation surprise is unlikely to be repeated in the May data due today at 13:30BST/8:30ET, at least on a month-on-month basis. But U.S. CPI is set to grow 0.5% following a 0.8% gain in April, according to the Bloomberg survey. From a year earlier, CPI is forecast to increase 4.7% - the fastest since 2008 (and up from 4.2% in April).
  • Gilts are outperforming Bunds and Treasuries this morning after more focus on the Northern Ireland trade debate between the EU and UK (with Biden potentially getting involved at the G7).
  • TY1 futures are down -0-3+ today at 132-21 with 10y UST yields up 0.5bp at 1.497% and 2y yields up 0.2bp at 0.158%.
  • Bund futures are down -0.13 today at 172.43 with 10y Bund yields up 0.3bp at -0.242% and Schatz yields down -0.1bp at -0.683%.
  • Gilt futures are down -0.01 today at 127.92 with 10y yields up 0.1bp at 0.731% and 2y yields up 0.5bp at 0.058%.