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Lagarde leads Schatz yields higher

BONDS
  • The main event of the morning session has been the release of a blog post by ECB President Christine Lagarde in which she explicitly stated that she expected the APP to end "very early" in Q3 with a July rate hike and an end to negative rates by the end of Q3. This is the most explicit policy steer from an ECB Executive Board member to date and has seen the Euribor curve steepen and Schatz yields increase more than 2-year UST or gilt yields. Lagarde was actually confirming something that is more than fully priced into the market - but the market will see this as the base case, with the prospect of more being needed if inflation moves even higher.
  • Looking ahead there is a policy panel at an Austrian National Bank event. The panel topic will be "Monetary policy, policy interaction and inflation in a post-pandemic world with severe geopolitic altensions" with panelists including Holzmann, Bundesbank's Nagel and BOE Governor Bailey.
  • We are also due to hear from ECB's de Cos and Villeroy and the Fed's Bostic while this morning's German IFO survey was slightly stronger than expected.
  • TY1 futures are down -0-7+ today at 119-28+ with 10y UST yields up 4.1bp at 2.824% and 2y yields up 3.2bp at 2.616%.
  • Bund futures are down -0.56 today at 153.37 with 10y Bund yields up 4.0bp at 0.981% and Schatz yields up 5.3bp at 0.380%.
  • Gilt futures are down -0.38 today at 118.50 with 10y yields up 2.6bp at 1.918% and 2y yields up 2.4bp at 1.518%.
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