Gilt Underperformance Continues

Gilts continue to underperform in a bear flattening move, with the German curve bear steepening in early European trade. Cash Treasuries have modestly twist steepened, with futures testing Tuesday's low (110-30+) ahead of Fed minutes later.

• Gilt futures have weakened fairly steadily since the open, continuing the bearish move following Tuesday's strong PMIs.
• Bunds remain on the backfoot, with cash 10 yields testing the 2023 high of 2.5744% - benefiting only briefly from a downward revision in Italian final PMI and pushback from ECB's Villeroy on terminal hike pricing. In-line German IFO had little impact.
• Villeroy's remarks benefited periphery EGBs briefly, but the move retraced. ECB peak pricing has remained a little softer (down 4bp on the session).
• Most of the event risk is done for the day with a light day for US data ahead. Main focus on Fed communications: primarily the Feb FOMC meeting minutes (our note here), with NY Fed's Williams appearing later.
• Supply is highlighted by $43B 5Y Note auction (there's also $22B 2Y FRN).

Latest levels:

• Mar 10-Yr US futures (TY) down 2.5/32 at 110-31.5 (L: 110-30.5 / H: 111-08.5)
• Mar Bund futures (RX) down 21 ticks at 133.74 (L: 133.7 / H: 134.23)
• Mar Gilt futures (G) down 59 ticks at 101.12 (L: 101.1 / H: 101.86)
• Italy / German 10-Yr spread 2.2bps wider at 195.9bps