Italian Inflation Provides Relief Across Core FI

A softer-than-expected preliminary Italian inflation print provided a boost across the space in European morning trade, with curves mixed. Germany is leading gains at the short end, with UK yields lower at the long end; US yields are fairly steady (down 3-4bp) across the curve.

• With Italy's inflation "miss" seen as a positive harbinger for the key upcoming eurozone inflation readings this week, bringing Bunds well off session lows, ECB terminal pricing has pulled back a couple of basis points on the day.
• Periphery EGBs are underperforming: a comment by ECB's Vujcic and a sources report by Bloomberg earlier pointed to the ECB considering more aggressive balance sheet normalisation.
• Data the rest of the session is 2nd tier, with US mortgage applications, trade balance, and inventories data.
• The main highlight is a Sintra event featuring Fed's Powell, ECB's Lagarde, BOE's Bailey, and BOJ's Ueda. We also hear from BOE's Pill later this morning, and it's likely there will be more sideline comments, especially from ECB participants.
• US supply includes $22B 2Y FRN and $35B 7Y Note auctions.
• Later (1630ET) we get the Fed's annual bank stress test results.

Latest levels:

• Sep US 10Y futures (TY) up 7/32 at 113-01.5 (L: 112-26.5 / H: 113-2)
• Sep Bund futures (RX) up 41 ticks at 134.57 (L: 133.92 / H: 134.59)
• Sep Gilt futures (G) up 62 ticks at 96.04 (L: 95.25 / H: 96.07)
• Italy / German 10-Yr spread 1.5bps wider at 164.3bps