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US And German Curves Bear Flatten On Hawkish Fed / ECB Repricing


Global yields continue to rise on upward central bank hike repricing Friday, with hawkish commentary yesterday out of the FOMC (Mester and Bullard seen eyeing 50bp hikes) and ECB's Schnabel this morning warning that markets are underestimating inflation.

  • Peak rate expectations hit new cycle highs (Fed > 5.30%, ECB ~3.73%) this morning, putting further pressure on the US and German short end/curve bellies, and periphery EGBs.
  • In contrast to Bund and Tsy bear flattening, the UK curve is bear steepening, with berter-than-expected UK retail sales data merely clawing back some of the drop in BoE hike pricing since the mid-week UK CPI figure.
  • A fairly light calendar ahead. ECB's Villeroy speaks later in the European morning. Fed's Barkin and Bowman make appearances, having already heard from them this week, while US Import Prices and Leading Index are decidedly 2nd tier data.
Latest levels:
  • Mar 10-Yr US Tsy futures (TY) down 14.5/32 at 111-14 (L: 111-08.5 / H: 111-24)
  • Mar Bund futures (RX) down 50 ticks at 134.04 (L: 133.67 / H: 134.5)
  • Mar Gilt futures (G) down 56 ticks at 102.24 (L: 101.86 / H: 102.34)
  • Italy / German 10-Yr spread 2.9bps wider at 188.4bps

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