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Bond Prices Flat, Cautious into Potentially Pivotal Day

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US Treasury prices were little changed Wednesday, giving up a minor overnight rally heading into a session of potential events. The 2-year was flat at 2.344% as was the 10-year at 2.499%. Inflation data and the 10-year auction may be key events while a late session peek into the thinking of the more dovish Federal Reserve could spark some action.

Core European bonds also gave up early gains, taking yields modestly higher. The UK Gilt was underperforming with the rate up 2 basis points to 1.120%, while the German Bund was unchanged at -0.005%. Peripheral yields were lower, led by a 2.2 bps drop in Italy’s BTP rate near 2.397%. The Japanese Government bond closed 0.7 bps lower near -0.066%.

Equities were mixed overnight with the Nikkei closing with a 0.5% loss, while the Shanghai Comp and CSI 300 were fractionally firmer amid ongoing talk of progress on trade talks. European bourses were rallying with the DAX gaining 0.4%, while the FTSE was off 0.17%, despite stronger-than-expected production numbers out of France, Italy and the UK, though some of the strength in the latter was likely Brexit stockpiling. There’s also hope a no-deal Brexit can be avoided, with the European Council reportedly suggesting a long “flex-tension” or a June 1 exit. Markets now await the European Central Bank decision. Meanwhile, US futures were about 0.2% higher.

The day has limited data but that included the March consumer price index (8:30 am ET) and the March Treasury budget (2 pm).

The minutes from the March 19-20 Federal Open Market Committee meeting will be released (2 pm) which will be scrutinized for more insight on the 180-degree shift to a more dovish tone. Little new news is expected nor insights on the policy path, or quantitative-easing normalization.

The Treasury will auction $24 billion in reopened 10-year notes (1 pm).

Fed speakers include Vice Chair for Supervision Randal Quarles on financial stability (11:50 am) with Dallas President Robert Kaplan on the global economy (7 pm).

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