Global Short End Continues To Underperform Post-Powell

Global core FI continues to weaken in early Wednesday trade, with no clear out/underperformers but a general theme of bear flattening evident.

• The US, German and UK short ends are weakest on the curve, with 2Y yields up 3+bp across the board. The US 2Y yield made headlines by hitting a post-2007 high above 5.08% before retreating. Meanwhile, terminal hike pricing in Europe continued to rise on the back of Fed Chair Powell’s hawkish commentary Tuesday.
• That said, BoE and ECB hike prospects pulled back from multi-month / cycle (respectively) intraday highs of ~5.00% / 4.18%.
• BoE’s Dhingra delivered a dovish speech as expected, while Italy’s Visco took aim at his ECB colleagues, decrying multi-meeting rate hike guidance opposed to a meeting-by-meeting approach.
• German /Italian retail sales and German industrial production both beat expectations, while the Eurozone final GDP revision was in line.
• A fairly busy US data slate is highlighted by more employment indicators: ADP payrolls and JOLTS are the highlights, in addition to the Jan trade balance.
• Powell’s 2nd day of Congressional testimony is the speaker highlight (Barkin will also be eyed), with the Fed’s Beige Book out later. The Bank of Canada decision (pause expected) also bears watching.
• US supply includes $32B 10Y Note reopen.

• Jun 10-Yr futures (TY) down 3.5/32 at 110-27 (L: 110-20.5 / H: 110-31.5)
• Jun Bund futures (RX) down 16 ticks at 131.06 (L: 130.77 / H: 131.24)
• Jun Gilt futures (G) down 25 ticks at 99.83 (L: 99.55 / H: 99.96)
• Italy / German 10-Yr spread 1.5bps wider at 185bps