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Looking ahead to tomorrow's US CPI print

BOND SUMMARY

Core fixed income has been under pressure this morning as markets look ahead to tomorrow's US CPI print.

  • Consensus is looking for tomorrow's CPI print to come in at 3.6% Y/Y on a headline basis. This would be the highest level since 2011 and easily eclipse the 2.9% high seen in July 2018. Core CPI is expected to pick up above 2% with the M/M print expected at 0.3%M/M.
  • Despite the focus being on US CPI, it has been European core FI that has borne the brunt of the losses today with Bunds underperforming gilts (with 10-year yields up 4.7bp and 4.1bp respectively).
  • Against this backdrop, Germany is holding a syndication to launch a new 30-year Green Bund but demand has remained strong with the spread set at the benchmark minus 2bps.
  • The rest of the calendar remains relatively light with Italian IP weaker than expected, the German ZEW stronger and only NFIB and JOLTs data from the US today.
  • There are a number of Fed speakers scheduled (Williams, Brainard, Daly, Bostic, Harker, Kashkari) while BOE's Bailey is due to talk on LIBOR alternatives.
  • Gilt futures are down -0.48 today at 127.80 with 10y yields up 4.3bp at 0.830% and 2y yields up 2.5bp at 0.058%.
  • Bund futures are down -0.76 today at 169.53 with 10y Bund yields up 4.8bp at -0.165% and Schatz yields up 1.3bp at -0.680%.
  • BTP futures are down -0.56 today at 146.43 with 10y yields up 5.2bp at 0.979% and 2y yields up 1.8bp at -0.271%.
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