US Inflation Commentary

Treasury yields surged in a bear flattener on the hotter than expected CPI data, with the 2-year climbing over 10 bps to 1.456%. 10-year zoomed over 6 bps to 1.9979% with sights on the 2% level. The 5-year cheapened 8 bps to 1.897%. The curve narrowed to 52.7 bps from 57.3 bps. The market is pricing in 150 bps in hikes this year, with the April contract reflecting 46 bps. EGBs are also selling off on the back of the US inflation print.

ECB officials had been out in force earlier today to calm rate hike speculation, but while that helped to keep a lid on the short end, the US inflation overshoot has pushed up long rates and led to a steeping of Eurozone curves, while the UK curve has shifted broadly higher. That suggests the ECB needs to manoeuvre very carefully at the moment, with any push back against tightening expectations risking a pick- up in inflation expectations.


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Stuart Cowell

Head Market Analyst

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