On The Defensive After A firmer Start, ECB Speak Helps

Core bonds have faded Friday’s initial bullish impulses that were drawn from solid demand at yesterday’s 7-Year Tsy auction, questions re: the degree of UK fiscal easing space, softer-than-expected Tokyo CPI data and a dovish ECB sources piece from RTRS.

• ECB speak has been cited as the driver, with comments from the hawkish wing of the Bank’s Governing Council providing some counter to the rally. That has pushed core global STIR markets off dovish session extremes, but the major markers in core global bond markets still trade firmer than levels seen heading into yesterday’s ECB decision/U.S. data.
• The mark lower in inflation and growth expectations in the latest ECB SPF was generally in line with rhetoric deployed by Lagarde on Thursday, so had little tangible impact.
• All of the major core global FI futures are below best levels, with U.S. TY and Bund futures at fresh session lows.
• Cash Tsy yields are 1-3bp higher as the curve bear flattens.
• German yields are flat to 2.5bp higher, as the curve bear steepens.
• The rally in European equities will have helped promote further peripheral spread tightening today, with ECB pricing still sitting comfortably more dovish than pre-decision levels. The 10-Year BTP/Bund spread hasn’t breached the 150bp mark as of yet.
• Gilt yields are 1-2bp higher, with the curve seeing a light steepening. International inputs have had the most meaningful influence today.
• U.S. PCE headlines the global data docket ahead of the weekend, with participants also on the lookout for any further impromptu ECB speak.