At the end of last week, the latest inflation figures essentially showed that the game was not yet won. Indeed, the Core PCE price index in the US came out at +4.6% against +4.7% expected. In the Eurozone, inflation (CPI) recorded a clear decline from 8.5% in February to +6.9% in March. However, excluding volatile items (including energy, alcohol, tobacco and food), prices continued to rise by +5.7%, leaving the door open for further rate hikes by the ECB.

Blue: CPI YoY, White: Core CPI Eurozone

At the same time, fears about banks are gradually fading, which also pushed yields higher. Indeed, St. Louis Fed President James Bullard explained that the liquidity problem could be solved by other means than an interest rate cut. According to the CME's FedWatch tool, the odds of a 25 basis point rate hike on May 3 rose in one week from 27% to 52%. Logically, this translated into a recovery of bond yields above key supports at 3.35% for the US 10-year and 2% for the German 10-year.

On the curve, the 2/10 US cash remains in negative territory at -58. The German equivalent is not doing much better at -39. In other words, banks do not have much incentive to lend money to economic actors since the interest rate spread is unfavorable to them.

As for inter-country spreads, we note that there is no significant tension between Germany and peripheral countries such as Italy, with the spread remaining stable around 185 basis points. As a reminder, in a tense market (i.e., one in crisis), the spread typically widens because lending to Italy is more dangerous than lending to Germany and it is therefore necessary to remunerate this risk. For the time being, everything seems to be under control.