Europe Still Reeling From Hawkish ECB Signals

The ECB's hawkish messaging continues to sink European core FI, with Bunds underperforming early Friday.

• With ECB hawk commentary this morning (Holzmann, Rehn and others) pushing up the eurozone terminal rate to well above 3%, US instruments are easily outperforming their European counterparts, with only mild bear steepening in Treasuries.
• The German curve has sharply bear steepened, with the UK's bear flattening. Most yields across Europe are up double-digits of basis points.
• Periphery EGBs are underperforming, with 10Y BTPs and GGBs another 12-13bp wider of Bunds.
• Also contributing to the weakness was stronger-than-expected overall Eurozone PMIs (Germany easily beat, France missed). UK Services PMI beat but manufacturing was on the weak side.
• US prelim PMIs are up later, and speaking later today are ECB's Knot and Centeno. SF Fed's Daly is our first scheduled post-FOMC speaker.

Latest levels:

• Mar 10-Yr US futures (TY) down 8/32 at 114-21.5 (L: 114-21 / H: 114-30.5)
• Mar Bund futures (RX) down 153 ticks at 137.12 (L: 137.06 / H: 138.62)
• Mar Gilt futures (G) down 146 ticks at 103.37 (L: 103.35 / H: 104.31)
• Italy / German 10-Yr spread 11.8bps wider at 220.1bps