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​European inflation driving a repricing of ECB expectations and core FI

BONDS
  • A repricing of ECB rate hike expectations on the back of European inflation data this morning has been the key driver of core fixed income markets this morning. Based on state CPI data from Germany so far, MNI estimates that national German CPI fell by -0.5%M/M (a 10.0%Y/Y rise). This would imply a 3-4 tenth miss versus expectations of the national CPI print (although this might not imply quite the same for HICP but the direction is likely to be the same). Spanish HICP was 5-6 tenths softer than expected too, coming in at -0.5%M/M and from from +7.3% to 6.6%Y/Y.
  • Market estimates of ECB pricing for December have fallen from about 62bp to 57bp and for the terminal rate have fallen from around 152bp to around 143bp. This has seen Schatz yields move over 9bp lower on the day and the whole German curve has shifted despite some small steepening.
  • Later today we will hear from BOE Governor Bailey as he testifies ahead of the Lords Economic Affairs Committee while we also have US Conference Board consumer confidence data. We are due to hear from ECB's Schnabel and de Cos on non-mon pol topics.
  • Today will also see the first BOE operation to sell some of its "temporary" long-dated and I/L gilt holdings that it built up through its financial stability purchases last month. The operation will be "demand-led" and has no set size - so could potentially see no sales at all.
  • TY1 futures are up 0-7+ today at 113-05 with 10y UST yields down -1.2bp at 3.671% and 2y yields down -0.8bp at 4.433%.
  • Bund futures are up 0.90 today at 141.32 with 10y Bund yields down -7.9bp at 1.906% and Schatz yields down -9.5bp at 2.019%.
  • Gilt futures are down -0.06 today at 105.80 with 10y yields down -1.8bp at 3.102% and 2y yields down -1.7bp at 3.236%.
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