Under Pressure As Details Of German State Level Inflation Appear Firm

Core/semi-core EGBs remain under pressure as markets digest the totality of this morning's Eurozone national/state CPI prints.

• While the French and Spanish flash inflation readings appeared a touch firmer than consensus expectations, most focus has been on the German state-level data. MNI's tracking indicates that while headline inflation appears on track to match consensus, there are upside risks to the core print, which will be weighing on EGBs.
• On a more dovish note, Geman retail sales were weak and unemployment unexpectedly rose to 5.9% in February (from 5.8% prior), though these were of secondary focus to the inflation data.
• The German and French cash curves have bear flattened, with the short-end under pressure as OIS contracts price out 2024 ECB rate cuts: There are now 84bps of cuts priced through the remainder of 2024 (vs 93bps this morning).
• Bunds are -55 ticks at 131.66. Should Bunds sustain a clear break of the Feb 22 low at 131.78, the next focus is on 131.49, the 61.8% retracement of the Oct 4 - Dec 27 bull phase. Clearance here would strengthen a bearish theme.
• 10-year periphery spreads to Bunds are wider with the exception of Greece, with the 10-year BTP/Bund spread +1.3bps wider at 143.9bps.
• The German national CPI print is the next focus at 1300GMT/1400CET, while US PCE at 1330GMT will also be of interest.