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European Bonds Rally

• European sovereign debt yields are moving lower this morning as U.K. Prime Minister May's speech about her Brexit strategy has sent the British pound to its largest gain since 2008 (+2.23% to $1.2320). Consumer price inflation in the U.K. ran hotter than expected in December (1.6% y/y) and it appears that the U.K.'s departure from the EU's single market has already been priced in by cable traders. In Germany, the ZEW Insitute's index of economic sentiment missed forecasts but the Current Conditions Index rose more than expected. The European Central Bank's Governing Council announces its next rate decision on Thursday. The council is widely expected to maintain monetary policy on its current course
• ECB Governing Council member Ewald Nowotny said today that rising energy prices may eventually move core inflation higher in the eurozone
• New Issuance:
  
  • Germany sold EUR4.03 bln of 2-year Schatz at an average yield of -0.75% with a bid-to-cover ratio of 1.26
    
    • December 7's Schatz auction drew a bid-to-cover of 1.81 so by that measure, demand was much weaker this month
• European Economic Data:
  
  • In the U.K., consumer price inflation rose to 1.6% y/y in December (0.5% m/m), exceeding both forecasts and November's 1.2% rate. December's reading was the highest since August 2014
    
    • The core CPI was up 1.6% y/y
    • The House Price Index grew by 6.7% y/y in November, accelerating from an upwardly revised 6.4% increase in October
  • The ZEW Institute's eurozone Economic Sentiment Index rose less than expected to 23.2 for January from 18.1 for December
  • In Germany, the ZEW Economic Sentiment Index also rose less than expected to 16.6 for January from 13.8 for December
    
    • The Current Conditions Index jumped by more than expected to 77.3 from 63.5
  • France's government budget deficit widened to EUR93.3 bln for November from EUR85.5 in October
• European Yields:
  
  • France, 10-yr OAT: -4 bps to 0.76%
  • Germany, 10-yr Bund: -4 bps to 0.30%
  • Greece, 10-yr note: +4 bps to 6.98%
  • Italy, 10-yr BTP: -2 bps to 1.88%
  • Portugal, 10-yr PGB: -5 bps to 3.78%
  • Spain, 10-yr ODE: -2 bps to 1.38%
  • U.K., 10-yr Gilt: -1 bp to 1.31%