Off Best Levels As Early Impulse Fades, Plenty Of Risk Events Ahead

Initial European trade saw core global FI markets benefit from a combination of the late NY Tsy rally, downticks in U.S. & Chinese equity indices (the former post-big tech earnings and the latter on well-defined areas of economy worry/lack of fresh policy support), source reports flagging less room for UK fiscal easing and softer-than-expected French & Australian CPI prints.

• Initial regional German CPI data helped bias the space away from best levels (with a particularly focus on the relatively firm print from the lowly-weighted Saxony), before the totality of the data/run rate for the national release (~2.9% Y/Y) limited the pullback.
• Still, there hasn’t been a meaningful bid in the time since, with continued supply burden (the EFSF became the latest to frontload their syndication schedule, along with the presence of Italian & German supply) and firmer than-expected Italian wage data (which was driven by a one-off government subsidy) resulting in some light pressure in recent trade.
• The failure of bond bulls to hold/develop a shallow breach of 4.00% in U.S. 10s also aided the pullback.
• Bund futures trade ~45 ticks shy of highs but are still ~55 ticks better off. Cash trade sees German benchmark yields printing 0.5-5.0bp lower on the day, with a bull flattening impulse.
• Peripherals are little changed to 2bp wider vs. 10-Year Bunds, with the presence of the Italian 15-Year BTP syndication (today’s business) providing the focal point on that front.
• Gilt futures are 0 ticks higher on the day, a little over 35 ticks off best levels. Cash gilt yields are 1.0-2.5bp lower, with a light flattening bias seen.
• Looking ahead, most of the focus will fall on U.S. matters, with the FOMC, QRA, ADP labour market data, MNI Chicago PMI and employment cost index all due. The aforementioned national German CPI print and supply headlines the European docket.