Firmer & Steeper As ECB Pricing Eases

An expectation matching deceleration in core Eurozone CPI Y/Y dominates post-data reaction, with the uptick in the headline Y/Y CPI release in line with what the national CPI releases reflected ahead of time.

• Comments from ECB’s Schnabel were more in line with the data-dependent central train of thought at the Bank vs. her historical hawkish leanings. This allowed the space to firm ahead of the data, even though her comments were not overtly dovish.
• Typically hawkish comments from ECB’s Holzmann have little impact.
• Pricing covering the September ECB meeting now shows ~8bp of tightening, comfortably back below even chances of a 25bp step, after moving above the 50/50 mark in recent days.
• Bund futures look through Tuesday’s high as they trade to best levels of the day post-EZ CPI, but follow through there is lacking.
• That leaves the contract +35, a little shy of highs, while the major German cash benchmarks are 2-7bp richer, bull steepening.
• Other core/semi-core curves see similar bull steepening moves, with spreads vs. Bunds within 0.5bp of yesterday’s closing levels.
• Peripherals are flat to 1bp tighter vs. 10-Year bunds.
• Little reaction to yesterday’s BBG source report suggesting Italian PM Meloni’s coalition is “considering selling minority stakes in selected state-owned companies to boost Italy’s public finances.”