EGBS: Higher-than-expected June Core Inflation Keeps Pressure On EGBs

Downward pressure in major EGB futures has persisted after Eurozone flash June core inflation was a tenth above consensus on a rounded basis at 2.9%.

• However, the “low” unrounded core print (at 2.86%) has likely limited downside moves, alongside recent ECB-speak from Sintra downplaying the importance of individual data points and acknowledging the bumpiness of monthly inflation readings.
• OAT and BTP futures are both close to intraday lows and were already underperforming before the inflation release, amid a broad risk-off tone across global markets (stronger USD, weaker European equity futures).
• Bunds are +2 at 130.43. Yesterday’s sell-off undermined a recent bullish theme and signalled scope for a deeper retracement. First support lies at 130.28. 
• EGB curves have generally steepened, while 10-year peripheral spreads to Bunds are wider as a result of the risk environment.
• The 10-year BTP/Bund spread is ~3bps wider at ~153bps, with today’s Q1 fiscal data (debt/GDP at 8.8% vs 7.4% prior) likely also factoring in.
• The remainder of today’s regional calendar centres on ECB-speak from the Sintra forum, while US job openings headline across the Atlantic.