Firmer On Positive Inflation Data; Peripheries Tighter

Core/semi-core EGBs are off the day's best levels, but remain firmer on the day on the back of soft EZ inflation indications and dovish Fed-Speak yesterday.

• November flash inflation estimates from German states and Spain have pointed to a downside risk to the current Eurozone HICP consensus (at 2.7% Y/Y, released tomorrow @ 1000GMT). Yesterday's impetus came as Fed Governor Waller - an influential member of the FOMC - brought up the idea of US rate cuts in the coming months to maintain the level of real rates.
• Bund and OAT futures are both up around 40-50 ticks at typing, while the German 2s10s curve lightly bull steepens as 10-Year Bund supply would have limited the downside in yields. The OAT curve is seen bull flattening, with the 2s10s curve down -2.4bp today at -24.9bp.
• Peripheries outperform in line with the positive risk sentiment across markets, with the 10-Year BTP/Bund spread tightening 3.1bps to 172.4bps. The final 5/10-Year BTP auction of the year will have weighed in the lead up, but demand metrics came out reasonably strong with a decent auction price vs the pre-auction mid. News that the EC has approved Italy’s E16.5bln NGEU payout will have also been supportive.
• The remainder of today's docket sees the German national CPI print at 1300GMT, with no ECB speakers currently scheduled.