Fedspeak, European & U.S. Equity Bid & Italian Sovereign Rating Talk Dominates Pre-NY

U.S. Tsys run 2-3bp cheaper with a light steepening bias (TU/UXY steepener flow equating to DV01 ~$290K was seen in Asia-Pac/London hours). The latest uptick in e-minis will have applied some fresh weight. Comments from Fed Governor Bowman biased the space cheaper during early London hours, as she noted that the recent economic data have not provided evidence that inflation is on a clear downward path and the Federal Reserve may need to tighten monetary policy further.

• Early weakness in EGBs started to unwind, before the latest uptick in equities capped the move. Early cheapening moves looked to post-cash close dynamics, Fedspeak and perhaps some worry surrounding this evening’s potential Italian sovereign credit rating update from Fitch. Bunds have bear flattened on the day, while peripherals are flat to a couple of bp tighter to Bunds at the 10-Year point (early BTP widening has unwound)
• Gilts initially looked to broader market drivers, before slightly softer than expected, although generally in line with BoE forecast, UK GDP data may have filtered in with a bit of a delay, limiting early losses. The Gilt curve is steeper on the day.
• Looking ahead, Fedspeak from Daly & BoE speak from Pill provide the highlights of the docket, while Fed Governor Jefferson and St. Louis Fed President Bullard are due to speak late in NY hours, after markets close. Participants will also look at the latest inflation expectations within the U.S. UoM sentiment survey with interest.

Current Levels:

- TY1 futures are -0-2+ today at 115-31 with 10y UST yields up 2.0bp at 3.407% and 2y yields up 0.8bp at 3.908%.

- Bund futures are -0.16 today at 136.57 with 10y Bund yields up 1.3bp at 2.236% and Schatz yields up 2.4bp at 2.552%.

- Gilt futures are -0.12 today at 101.39 with 10y yields up 1.5bp at 3.721% and 2y yields up 1.7bp at 3.734%.