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Gilts bear flatten following UK inflation data

BONDS
  • The upside surprise to UK inflation (including core inflation) this morning has been the driving force for markets so far today. Gilts have been the underperformers with the curve bear flattening as markets fully price a 25bp May hike (from 22.5bp yesterday) and two further 25bp hikes by the Autumn (cumulative 77bp priced by September up from 61bp yesterday and 52bp Monday). This has pushed 2-year gilt yields over 20bp higher since Monday's close and 10-year gilt yields around 15bp higher.
  • UST and Bund curves have also bear flattened with more being priced in for the Fed and ECB on the back of the UK inflation data too.
  • Looking ahead we have some ECB speakers due today (Lane, Knot, de Cos, Schnabel) and we will receive the Fed's Beige Book.
  • TY1 futures are down -0-12+ today at 114-03 with 10y UST yields up 4.1bp at 3.619% and 2y yields up 6.7bp at 4.267%.
  • Bund futures are down -0.53 today at 133.43 with 10y Bund yields up 3.3bp at 2.507% and Schatz yields up 5.0bp at 2.947%.
  • Gilt futures are down -1.03 today at 100.19 with 10y yields up 7.9bp at 3.822% and 2y yields up 12.0bp at 3.793%.
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