EURi: Data head fake followed by decent rally

Inflation numbers from Spain and NRW sent inflation sharply lower at first today before data spurred what dealers said was a decent rally.

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  • Data head fake followed by decent rally 

  • New issues


    Data head fake followed by decent rally 

    Contrasting inflation data sent the front end of the curve on a rollercoaster ride today, with dealers sounded tired at the end but slightly happier with liquidity than earlier this month.


    First, a big, 60bps miss for March Spanish HICP (3.1%yoy versus the 3.7%yoy Bloomberg consensus) and a slightly soft first German print from NRW print sent EUR 1y inflation tumbling to test 3.68% on the screens from 3.75% at the open. “There was no bid, only offers” a dealer explained, adding that sudden demand for duration added to the pressure on inflation as the Bund surged by a point.


    However, as more Laender CPIs began to arrive, it became clear that German HICP was not going to follow Spain’s example. German HICP eventually came in 30bps above-consensus at 7.8% and even Spanish core inflation was only 10bps below forecasts at 7.5%. Helpfully, duration also began to weaken from around 9AM with the Bund ending around 80 ticks lower.


    “We had a decent rally” from the morning onwards, the trader confirmed. EUR 1y rebounded as more German numbers arrived, rising through opening levels to hit a 3.8275% high before closing at 3.81% as profit-taking arrived, still up 6bps on the day. Similarly 1y1y rose 7bps to 2.26% and while 5y5y gained 2bps to 2.42% as the curve bull-flattened.


    Ahead, dealers were broadly positive about the prospects for inflation given the strength of the core data, with any weakness in the numbers so far this month attributed largely to energy. “Core is strong, food is strong and clothing is strong,” judged one although he warned there was no clear read-over from today’s prints to tomorrow’s French and Italian inflation numbers. Meanwhile the March euro HICPx fixing hadn’t traded today but was up to around 7.12% on the screens after the German data according to traders, from 7.04% earlier in the week.    


    Swap trades today according to the Total Derivatives SDR included EUR 1y at 3.82% and 3.813%, 1y1y late in the session at 2.27% in €250m, and 2y at 3.065% in  €75m. EUR 10y traded a few times, last at 2.53% and 5s/10s went through at -10.2bps.     


    Ahead, the DFA confirmed plans to auction €400m in Bundei-33 and €200m in Bundei-46 on April 4. Asked whether the looming Easter break would mean a quiet few days, traders did not sound hopeful. “There are no quiet weeks,” sighed one, “except maybe when you sleep.”


    New issues

    • Deutsche Bank launched a EUR inflation linked note due 27 Apr 2026. The note is linked to euro HICPx inflation with 2% floor. Self-led.   


    • Deutsche Bank launched a EUR inflation linked note due 20 Apr 2027. The note is linked to euro HICPx inflation with 2.2% floor. Self-led.