EGBS: Weaker Following Above-Consensus Core HICP Reading

EGBs are weaker after Eurozone core inflation printed two tenths above consensus in the May flash release.

• Weakness was already seen ahead of that release as national readings pointed to upside risks in the eurozone-wide print.
• The data suggests that underlying inflation pressures remain persistent and means the ECB may need to accompany its well-signalled 25bps cut with hawkish guidance at next week’s meeting.
• Bunds are -25 ticks at 128.93, after reaching an intraday low of 128.74 post-data.
• German and French cash yields are 2 to 4.5bps higher today, with 5s leading the sell-off.
• 10-year peripheral spreads to Bunds biased slightly tighter.
• ECB-dated OIS briefly probed last week’s hawkish extreme before retracing slightly, currently showing 57bps of cuts through the remainder of 2024.
• The strip shows very slim odds of back-to-back ECB cuts over the next couple of meetings.
• Focus now turns to the US, where April PCE data headlines.
• EGB month-end extensions are not seen as meaningful but may provide some modest background support later in the day.