Gilt curve bear flattens on CPI print; FOMC the highlight later

There is some divergence in core fixed income markets this morning.

• The biggest moves have been seen in gilt markets with the curve bear flattening after this morning's higher than expected CPI data (headline and core both 3 tenths higher than expected at 5.1%Y/Y and 4.0%Y/Y respectively). Markets are now looking for just under a 50% probability of a BOE hike tomorrow, up from around 35% probability yesterday.
• The event of the day of course will be the FOMC meeting. Ahead of this the Treasury curve has bear flattened. A faster pace of tapering is fully priced into the curve. What would be more market moving would be the FOMC more than 2 hikes in 2022, or a hiking pace faster than 3 hikes per year. This would be a hawkish development.
• And of course we have the ECB tomorrow, but today the Bund curve is only seeing small moves with peripheral spreads mixed (Spain wider, Italy and Greece tighter).
• TY1 futures are up 0-2+ today at 130-23 with 10y UST yields down -1.0bp at 1.433% and 2y yields up 0.2bp at 0.660%.
• Bund futures are unch today at 174.46 with 10y Bund yields down -0.3bp at -0.374% and Schatz yields unch at -0.695%.
• Gilt futures are down -0.27 today at 127.09 with 10y yields up 2.2bp at 0.744% and 2y yields up 5.0bp at 0.484%.