EGB/Gilt: EZ Inflation Hits Fresh Record

European government bonds trade mixed this morning with a similarly uneven performance in the equity and FX space. Another bumper inflation print for the euro area is challenging the ECB's current policy setting at a time when the economic recovery is still not fully secured.

• Following a weak start, gilts have inched higher and now trade above yesterday's close. Cash yields are 1-2bp lower on the day with the curve slightly bull steepening.
• Bunds similarly initially traded weaker before recovering losses to now trade close to flat on the day.
• The OAT curve has marginally flattened with the 2s30s spread narrowing 1bp.
• The BTP curve has steepened with the 2s30s spread trading up 3bp on the back of the short end pushing higher and the longer end trading soft.
• Eurozone CPI surprised higher in December, coming in at 5.0% Y/Y vs 4.8% expected and marking another fresh record high.
• Elsewhere, German and French industrial production data for November came in weaker than expected (-2.4% Y/Y vs -0.8% expected and -0.5% Y/Y vs 0.6%, respectively) while Eurozone retail sales printed higher (7.8% Y/Y vs 5.6% consensus).
• Supply this morning came from the UK (UKTBs, GBP2bn).