EURi: Inflation flattens as German CPI beats lowest forecasts; Long iotas wider

Inflation flattens as German CPI beats lowest forecasts; Long iotas wider

Uncertainty about the impact on CPI of government support for German households’ gas bills ended today with the release of the flash data for December from the Laender, kicking off with a lowish print for NRW CPI. Inflation dealers noted that the data was “lower than the Bloomberg consensus” for German CPI with the result that nominals rallied and real yields fell as well – the latter after real yield buying was spotted yesterday.  

However, once data for all the Laender had been released, the outturn for German HICP of -1.2%mom/9.6% (versus 11.3%yoy last month) was only 40bps lower than the Bloomberg market median - and 90bps above the low forecast in the newswire’s survey.

Thus over the day as a whole, inflation “performed slightly in the morning,” according to traders, before “stepping back” and closing almost unchanged, with a small flattening seen across the curve. Oil’s drop from $85 to back below $83 arrived too late in the session to stop the inflation curve move.

EUR 1y swaps rose 3bps to 3.52% and traders said the Dec HICPx fix was now around 942 in the market ahead of French HICP on Wednesday morning, with the Bloomberg survey looking for 0.4%mom/7.3%yoy versus 7.1%yoy last month. EUR 10y swaps fell a bp to 2.46% while in the fowards 5y5y dropped 2bps to 2.38% and 10y10y fell 4bps to 2.62%.  

SDR data (Total Derivatives link) shows flow in EUR 10y late in the session at 2.4675% while FRF 5y traded at 3.185% in €100m. Note that SDR data now shows the platform on which the trade occurred.  

Finally, dealers highlighted the underperformance of the long end of the linker curve today with breakevens up to 5bps lower and iotas 3-4bps wider there.