Gilts Routed Post-CPI; BoE's Bailey, Fed Minutes Eyed Later

Gilts have dropped sharply after a much-higher-than-expected UK April inflation print, easily underperforming Bunds and Treasuries in early Wednesday trade.

• The upside shock in UK CPI (core 6.8% Y/Y vs 6.2% expected) pushed BoE terminal rate pricing up over 40bp at one point to 5.50%, putting 2Y UK yields on course for their biggest rise since Sept 2022 (up 25bp at time of writing to 4.39%) in a strong bear flattening move.
• Yields are off session highs but given the increasing focus on the BoE's path ahead, Gov Bailey's appearances today (particularly a fireside chat at 1400UK time) will garner additional attention.
• Treasuries and Bunds have fared better, with the US curve twist steepening and Germany's twist flattening.
• German IFO was on the weak side of expectations, but appeared to help Bunds bounce from an early UK-related selloff. We hear from ECB's Lagarde later.
• There's no key US data today, but in Fed communications, we hear from Fed's Waller, and later, the May FOMC minutes (MNI preview is here).
• In US supply we get $43B in 5Y Note and $22B 2Y FRN auctions.

Latest levels:

• Jun US 10Y futures (TY) steady at at 113-19.5 (L: 113-13 / H: 113-23.5)
• Jun Bund futures (RX) up 13 ticks at 134 (L: 133.46 / H: 134.18)
• Jun Gilt futures (G) down 76 ticks at 96.17 (L: 94.94 / H: 96.26)
• Italy / German 10-Yr spread 1.1bps wider at 186.3bps