How is today's move changing market pricing?

We had noted last week that some of the moves seen in European markets recently have been consistent with repricing of ECB moves rather than a traditional risk-off move. For example, we had seen peripheral spreads tighten as growth concerns hit markets and markets priced in a delay to ECB tapering despite the infationary pressures.

• However, inflationary pressures have hit new heights today despite with spike in European gas prices (and also in oil prices) (see earlier bullet on Euro 5y5y forward inflation swap). Euribor futures have not really shown much movement, perhaps as there is little monetary policy can do to control energy prices and the ECB still remains fairly calm about the passthrough to wider inflation. Markets continue to price around 21bp of hikes in 2022. Peripheral spreads have widened on the growth implications, however.