EGBS/Gilts Lower As Monday UST Selloff Sets Tone

Core/semi-core EGBs and Gilts opened sharply lower and are off intraday highs as markets digest this morning's manufacturing PMI and German state-level inflation data.

• Yesterday's sell-off in US Treasuries continues to set the tone, with today's highest levels still below Friday's close (note: US markets were open yesterday, while UK/EZ counterparts were closed).
• MNI's current tracking of the German headline CPI print from the state level data suggests downside risks to the current M/M consensus of 0.5% M/M, but core disinflation remains slow overall.
• Upward revisions to the March flash manufacturing PMI releases in Germany, France, the Eurozone and the UK, alongside stronger than expected prints from Italy and Spain have provided another source of pressure.
• Elsewhere, ECB 1-year ahead inflation expectations moderated to 3.1% Y/Y (vs 3.3% prior) while 3-year ahead expectations were steady at 2.5%.
• Bunds are -83 ticks at 132.55. The first support is the March 22 low at 132.28.
• The German and French cash curves have bear steepened, while 10-year peripheral spreads to Bunds are mixed (the BTP/Bund spread is 3.0bps wider today, but Spanish, Greek and Portuguese spreads are tighter).
• Gilts are -109 ticks at 98.85, operating below the 20-day EMA at 99.04. A clear break of this level would expose the key support at 98.05 (March 15 low).
• The remainder of today's regional calendar is headlined by the German flash national CPI release, at 1300BST/1400CET.