European Bond Yield Curve flattens after Hawkish Trichet

European Central Bank President Jean-Claude Trichet said the ECB may raise interest rates next month to fight accelerating inflation pressures. An “increase of interest rates in the next meeting is possible,” he told reporters in Frankfurt today after the central bank left its key rate at a record low of 1 percent. “Strong vigilance is warranted,” Trichet said, adding that any increase would not necessarily be the start of a “series” of moves.

The trading during the press conference was some of the busiest Ive seen in ages, real volatility and action. Sadly I didn't really maximise my opportunity by getting in on the back of the STRONG VIGILANCE statement, which was really a clean up opportunity, as Bunds fell 40 ticks on that, Schatz drop 15 fat tick, and Euro rallied 100 ticks. I was working some bids in the Euribor (stupidly I might add) as the comment came and found myself quite a bit offside quite quickly. But the beauty of a busy market that that it gives the opportunity to make your day back, and I was able to keep shorting spreads as the Yield curve flattened, whilst churning alot of roundies.

Short end got smacked as short term expectation for a rate rise rose as long term expectations remain similar this lead to aggressive flattening across the curve.
This is also lead to relative strength in the ftse and US markets as they pushed into these markets at the expense of the European Bourses.

We had a very strong day in the US markets, and as a result my short in NTCT looks finished, ill be looking to exit today regardless of what happens.

I expect us to be range bound till nonfarm payrolls later today. Could be a very whippy one, so watch out.