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[MARKET ANALYSIS] Bunds supported by cooler French and German State CPIs, JGBs underperformed despite solid 2-year auction

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[MARKET ANALYSIS] Bunds supported by cooler French and German State CPIs, JGBs underperformed despite solid 2-year auction

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  • Global fixed income benchmarks are firmer across the board, helped by softer energy prices, but also supported by cooler inflation prints in the EZ.
  • Bund (+18 ticks) upside initially came following the French inflation data, in which HICP softened to 2%, below the expected 2.4% and from the prior 2.8%. This followed the Spanish print on Monday, which came in slightly hotter-than-expected, but saw relief after the core figure cooled. The German state CPIs can give further relief for the ECB, after prices broadly cooled in all states. This comes ahead of the nationwide figure later today; HICP is expected to hold at 2.7%.
  • Many ECB policymakers were also on the wires this morning at the sidelines of Sintra. President Lagarde kicked off the Sintra conference on Monday. Even though her comments sounded slightly hawkish, it seemed to be an unwind of her dovish stance when she spoke last week in a way to keep all options on the table. Lane was the first GC member to speak today, in which he highlighted that the oil price curve is seen elevated in the coming years, which suggests higher economic costs. Sleijpen followed, in which he stated uncertainty despite lower oil prices, while Nagel rounded out the commentary thus far, saying that it is too early to make rate hike calls. Nagel's comment came after a source told Reuters that the surprisingly rapid retreat in energy prices has further taken pressure off the Bank to hike rates in July. 
  • USTs (+3 ticks) follow its German counterpart higher, albeit to a lesser extent, with focus this week being on comments by Fed Chair Warsh at Sintra on Wednesday and the US jobs report on Thursday.
  • JGBs (+2 ticks) traded on the softer side in the Asia-Pac session, however there was some relief following the 2-year JGB auction. The b/c was 4.82x, which was higher than the prior 3.70x and above the 12-month average of 3.74x. The strong auction was also backed by a small price tail. Despite the strong auction, investors remain concerned about further BoJ hikes, and perhaps more aggressively, to stabilise the Yen (USD/JPY recently topped 162.40).

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