The technical improvement seen this morning on bond markets - which had just posted their worst levels of the year on Thursday evening - was amplified by the release of the US PCE inflation index (the gauge most closely watched by the FED), which proved disappointing.
So much so, in fact, that the morning's gains were wiped out: it came out at +2.7% in March, compared with 2.5% in February, with the underlying rate (excluding energy and food) holding steady at 2.8% month-on-month.
US inflation is therefore a little higher than economists had anticipated, since those at Jefferies were, for example, expecting rates of 2.6% on a gross basis and 2.7% on an underlying basis.

The Commerce Department also reported that US household spending rose by 0.8% in March compared with the previous month, while incomes rose by 0.5%.

But US T-Bonds did not flinch, and even increased their rally: and this 90 minutes before the publication of US consumer confidence, which deteriorated more sharply than initially estimated in April, to 77.2 in 'final' terms, a level below the first estimate (77.9) and down sharply on the 79.4 level reached in March.
Households' assessment of their current situation deteriorated most sharply, to 79 from 82.5 last month.
The expectations component fell to 76 this month from 77.4 in March.

The easing in T-Bonds is only "in line" with household confidence: the US 10-year is down 4.5 points to 4.6650%, and the 2-year is down 1.5% to 2.983%.
The estimated probability of a rate cut in June, which was almost 64% a month ago according to CME Group's FedWatch tool, has now fallen back to around 12%.

Based on this barometer, expectations of a rate cut in September have fallen back to 44%, on a par with the scenario of a continuation of the 'status quo' (40%).

In Europe, the upturn is also surprisingly vigorous, with Bunds down 6pts to 2.563% and OATs down 7.2pts to 3.0500%, while Italian BTPs are down 10pts to 3.884%, compared with an annual record of 4.025% on Thursday at around 4:30 p.m.

Finally, across the Channel, Gilts are just off -2pts to 4.3500%.




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