UK Short End Underperforming Ahead Of US CPI

European curve flattening continues in early Tuesday trade, with the US cash curve mostly outperforming ahead of the Jan US CPI report.

• BoE hike pricing firmed on UK employment data showing the strongest wage growth rate on record outside the pandemic period. A 25bp hike in March is fully priced with another 25bp beyond that, pushing 2Y UK yields up by 5+bp.
• EGB periphery spreads have tightened, with BTPs holding up well despite large auction sizes this morning.
• The main event of course is the US inflation report at 0830ET/1330UK, with core % M/M seen +0.4%: our full preview is here. The Tsy curve is bull steepening in early trade, with modest belly outperformance.
• Whatever the CPI result, we get plenty of Fed commentary afterwards, including Barkin, Logan, Harker, and Williams. In Europe we hear from ECB's Makhlouf.

Latest levels:

• Mar US 10Y Tsy futures (TY) up 4/32 at 112-29 (L: 112-26.5 / H: 113-01.5)
• Mar Bund futures (RX) up 25 ticks at 136.09 (L: 135.99 / H: 136.56)
• Mar Gilt futures (G) down 6 ticks at 103.72 (L: 103.69 / H: 104.28)
• Italy / German 10-Yr spread 0.6bps tighter at 179.8bps