Eurozone peripheral government bond yield spreads have become increasingly asymmetrical and have room to widen if the market finds the European Central Bank's anti-fragmentation tool disappointing. The ECB is expected to provide a rough sketch of the anticipated anti-fragmentation tool at the July meeting next week, alongside a 25-basis-point interest-rate rise. The backdrop, meanwhile, gets more challenging, with growth slowing and inflation surging further. Inflation, which surged to a record high of 8.6% in June, isn't expected to peak before reaching 9.6% in September, with clear signs that the initial energy price shock due to the Ukraine conflict is fuelling more persistent dynamics across the basket.
- Morgan Stanley

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