EGBs Lead Core FI as Inflation Softens, With USTs Underperforming

Softer than expected inflation prints out of Spain and German states allow EGBs to firm in Monday trade, though Bunds are seen off highest levels at typing.

• Bund futures are up 0.41 today at 129.06 with 10y Bund yields down -3.1bp at 2.799% and Schatz yields down -2.4bp at 3.007%.
• With a light domestic data calendar, Gilts follow EGBs and are up 0.11 today at 93.00 with 10y yields down -0.5bp at 4.537% and 2y yields down -2.1bp at 4.725%.
• Spanish October flash headline and core CPI undershot consensus, reflecting a more broad-based disinflation than expected, while the three German states (most importantly NRW, which is 21% of the basket) that have released data so far also undershot the national consensus.
• Peripheries outperform on the back of the soft inflation data, with the 10-Yr BTP/Bund spread 4bps tighter at 193.2bps on the day. On Friday, DBRS Morningstar maintained Italy's credit rating at BBB (stable trend), which will have also helped BTPs on the margin.
• Developments in the Middle East this weekend have been seen as more cautious than expected r.e. Israel's ground invasion of Gaza, which helped cheapen core FI overnight and likely aided spread tightening this morning.
• ECB-speak over the weekend from Vujcic signalled his view that rates have been hiked sufficiently, while comments from the more hawkish Kazimir on wires recently note that further rate hikes are possible and H1 2024 rate cut bets are "entirely misplaced".
• USTs underperform European counterparts, with TY1 futures are down -0-3 today at 106-10+ and 10y UST yields up 2.0bp at 4.857%. The impending Q4 refunding announcement this week appears to be weighing on USTs thus far.